
Glass 16 + 

Book —^ 



61st Congress \ ex?** a tup /Document 

2d Session ] SLNAfE j No. 584 



NATIONAL MONETARY COMMISSION 



Interviews on the Banking and 

Currency Systems of 

Canada 



By 



A Subcommittee of the National Monetary 
Commission 






7t 



Washington : Government Printing Office : 1910 



/* 



61st Congress\ c1?M att? (Document 

2d Session ) SENATE | No. 584 



NATIONAL MONETARY COMMISSION 



Interviews on the Banking and 

Currency Systems of 

Canada 

m 

By 



A Subcommittee of the National Monetary 
Commission 



Washington : Government Printing Office : 1910 



&r 






NATIONAL MONETARY COMMISSION. 



Nelson W. Aldrich, Rhode Island, Chairman. 

Edward B. Vreeland, New York, V ice-Chairman. 
Julius C. Burrows, Michigan. John W. Weeks, Massachusetts. 

Eugene Hale, Maine. Robert W. Bonynge, Colorado. 

Philander C. Knox, Pennsylvania. Sylvester C. Smith, California. 

Theodore E. Burton, Ohio. Lemuel P. Padgett, Tennessee. 

Henry M. Teller, Colorado. George F. Burgess, Texas. 

Hernando D. Money, Mississippi. Arsene P. Pujo, Louisiana. 

Joseph W. Bailey, Texas. Arthur B. Shelton, Secretary. 

A. Piatt Andrew, Special Assistant to Commission. 






INTERVIEWS ON THE BANKING AND CUR- 
RENCY SYSTEMS OF CANADA. 

By a subcommittee of the National Monetary Commission: 

HON. EDWARD B. VREELAND, Chairman. 
HON. JOHN W. WEEKS. HON. ROBERT W. BONYNGE. 



The committee was accompanied by Mr. Clifford Hubbell, 
cashier of the Marine National Bank, Buffalo, N. Y. 



TABLE OF CONTENTS. 

Page. 
Interview with Henry C. McLeod, general manager of the Bank of 

Nova Scotia 9 

Interview with George P. Scholfield, general manager of the Standard 

Bank of Canada 81 

Interview with George H. Smith, secretary of the Canada Permanent 

Mortgage Corporation no 

Interview with Massey Morris, local manager of the Canadian Bank of 

Commerce at Toronto 117 

Interview with Alexander Laird, general manager of the Canadian 

Bank of Commerce 123 

Interview with Daniel R. Wilkie, general manager of the Imperial 

Bank of Canada 135 

Interview with Sir Edward Clouston, general manager of the Bank of 

Montreal 153 

Interview with H. V. Meredith, assistant general manager of the 

Bank of Montreal 190 

Interview with M. J. A. Prendergast, general manager of the Banque 

d'Hochelaga 204 

Answer of Canadian Minister of Finance to questions 212 

Statistical tables 218 



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7 



Interview with Henry C. McLeod, general manager of the Bank of Nova 

Scotia. 

By Mr. VreELANd: 

Q. What is your position? 

A. I am general manager of the Bank of Nova Scotia. 

Q. Are you located here? 

A. I am located here. 

Q. Where is the home office of your bank? 

A. The home office is at Halifax; the executive is 
here. 

Q. You would regard this as a better point from which 
to view the whole field than the home office, Halifax? 

A. It is more central. 

Q. Is it the practice of any of the other banks to have 
managers resident near the center of business ? 

A. No; it is not a general practice. We have interests 
in the West, interests in the United States, and it was 
found that Halifax was a point from which it was rather 
difficult to communicate promptly with some of the 
larger branches. 

By Mr. Weeks: 

Q. Being the Bank of Nova Scotia, you would be bound 
to have your main office in Nova Scotia? 

A. There is a sentiment of that kind. 
By Mr. Hubbeu,: 

Q. You are not legally bound to do so? 

A. No; we are not obliged to. We could apply to Par- 
liament and have the head office transferred to Toronto, 
if it were so desired. 



National Monetary Commission 

By Mr. Vreeland : 

Q. I was going to ask you a few questions with regard 
to the general banking laws; have you had occasion to 
give them any special attention, Mr. McLeod? 

A. Not much more than the ordinary attention of a 
banker operating under them. 

Q. The first general act, Mr. McLeod, relating to the 
banks of Canada seems to have passed in 1870 and 1871. 

A. That is the first general act governing the banks of 
the whole country, with the exception of a temporary 
extension of the powers already granted by provincial 
charters; the extending act was passed in 1868. 

Q. Each bank, as I understand, was chartered sepa- 
rately by the provinces before that. 

A. Yes; by the provinces. 

Q. When were the general amendments made to the 
act of 1871? 

A. There were amendments made in 1873 an d in 1875. 
In 1880 the act was revised and extended. In 1883 there 
was a small amendment, and in 1890 the act was revised 
and extended. The act was amended and extended in 
1900. 

Q. I notice that there seems to be some difference in 
the language of the law as applied to the Bank of British 
North America; do you know the cause for that? The 
amount of its circulation seems to be specified sepa- 
rately, and the provisions of the law that apply to it are 
separate. 

A. The Bank of British North America has its head 
office in England, and there is no double liability; that 



Banking and Currency Systems 

bank is therefore allowed to issue a less amount of circu- 
lation. 

Q. Three-fourths of capital? 

A. Three-fourths. 

Q. Was that bank chartered in England? 

A. It is chartered in England, and is mentioned in the 
Canadian bank act as one of the banks to which the act 
applies. 

Q. The law — that is, your general Dominion law — 
makes detailed provision for organizing banks, as regards 
public notice, the opening of stock books, and all such 
items of management; what then is the final step? Does 
the right to authorize the actual opening of a bank lie 
with the Dominion government or finance minister or 
your council? 

A. That is dealt with by the treasury board. The 
treasury board gives the final decision. 

Q. Of which the finance minister is chairman? 

A. Yes. 

Q. It does not have to go to the Canadian parliament 
for ratification? 

A. The charter is given by the Canadian government 
first and the treasury board passes upon the qualifications. 
The treasury board has to see that the requirements in 
regard to paid-up capital are carried out. But a new 
bank desiring to open its doors or to get a charter has first 
to make an application to the Dominion parliament. 

Q. I had an idea that you had what we call free bank- 
ing here now; in other words, that no special legislative 
act was necessary, but that any bank might open after 
complying with provisions of a general law. 



National Monetary Commission 

A. No. 

Q. They still have first to get a charter from the par- 
liament ? 

A. They have first to apply to parliament for a charter, 
and then the question arises whether they are entitled to 
get a charter. 

Q. How would that be determined? Suppose they 
complied with the requirements as to capital and all the 
other features of the law, would it be granted as a matter 
of course? 

A. It would be granted as a matter of course. 

Q. I notice that the number of your banks is much 
smaller than twenty-five years ago. 

A. Yes. 

Q. The number of chartered banks is 31 now? 

A. I think about 29 at present. 

Q. Here is the last statement of banks acting under 
charter for the month of July, 1909. It seems to figure 
up 31, and the Sovereign is included in that. 

A. Yes; that is a failed bank, and I think there are 
one or two others. 

Q. The Sovereign is the only one. I do not think the 
Ontario is included. 

A. There are two there, Mr. Vreeland. The St. Hya- 
cinthe and the Sovereign. 

Q. What was the other? 

A. The St. Hyacinthe; so there are 29 doing business. 

Q. Have any applications for charters been refused 
within the last ten years that you know of? 

A. I can not recall that any applications have been 
refused. 



Banking and Currency Systems 

Q. How do the present chartered banks look upon it? 
Do they look with favor upon new banks, or do they 
think it is better to permit the old ones to grow and estab- 
lish branches and become strong in that way? 

A. They do not look with disfavor on a new bank that 
is started under proper auspices. The cause of the de- 
cline in number is the amalgamation of banks and the 
failure of banks. We have had a good many failures. 
By Mr. Weeks: 

Q. Will you state how many in ten years ; do you recall? 

A. I can not give you the number for ten years, but I 
wrote a short letter on the subject some three years ago 
comparing the resulting failures of our system with yours. 
By Mr. VrEE^and: 

Q. It was based upon the number started? 

A. Yes. The failures in the United States were 5 per 
cent. Taking Canada from the year 1880 up to the date 
of my letter the failures were 25 per cent. Up to the 
present from the same date the percentage is 30 per cent. 

By Mr. Hubbeu,: 

Q. That is the number of head offices, is it not? 

A. Number of banks. 

Q. You do not include the branches? 

A. No; we do not include the branches. 
By Mr. Weeks: 

Q. The casualties among Canadian banks have been, 
numerically, five times as great as among the United 
States national banks? 

A. I wrote the article urging outside inspection of 
banks, and of course the letter made the case as strong 

13 



National Monetary Commission 

as possible, but the facts as stated are correct neverthe- 
less. Since then we have had three more failures. 

By Mr. Bonynge: 

Q. That is, since 1906? 

A. Since October, 1906; since the date of my letter. 

Q. What banks have failed since that time? 

A. The Sovereign, the Banque de St. Hyacinthe, and 
Banque St. Jean. 

Q. Which was the largest of those three banks? 

A. The Sovereign. 

Q. What was its original capital? 

A. It commenced business in May, 1902, with $1 ,300,000, 
issued at 125. 

0. How much capital had it when it got into trouble? 

A. Its capital was $4,000,000, at the highest point, 
according to the books and statements. 

Q. How much of it paid in? 

A. All paid in, and all lost, with a good deal more, in 
that short time. 

Q. You are familiar with the circumstances of its failure ? 

A. Yes. 

Q. Would you object to stating? 

A. Bad management — corrupt management. 

Q. Corrupt management? 

A. Yes; false returns. That is true of the Ontario 
bank as well. 

Q. How long was the Ontario bank in operation? 

A. The Ontario bank was started in 1856, and was prob- 
ably insolvent for forty years before its failure. 



14 



Banking and Currency Systems 

By Mr. VrEELAND : 

Q. I notice in the record of regulations of banks that 
the amount of discounts and loans to directors or firms 
in which they are interested is fixed by your by-laws. 
The Dominion laws do not cover liabilities and loans? 

A. There is no limit. 

Q. To either directors or anyone else? 

A. No. 

Q. So if there are any regulations of that kind they are 
in the by-laws of the institution? 

A. By-laws are seldom published, so that any limit is 
practically a dead letter. 

Q. I notice that the law provides that the business of 
banks shall be managed by a board of directors. I wish 
you to tell us, Mr. McLeod, to what extent the board of 
directors actually manages your banks ? We have a good 
deal of discussion on that point in the States. 

A. The directors supervise. They do not initiate busi- 
ness, and seldom pass upon it before it is transacted. 
The method is, we furnish our directors with the inspection 
reports of the branches as soon as they are made. We 
furnish them with a report every year by every manager 
on any loan or liability of the bank that amounts to a thou- 
sand dollars. That is, we have special reports. These 
reports come in from the branches with a report on 
each loan by each manager, and they are bound into 
volumes and sent, after they are examined by my depart- 
ment, to our directors. So that they have full informa- 
tion about all loans in the bank. They have this state- 
ment on the 31st of March for every year, showing every 



15 



National Monetary Commission 

loan we have, full particulars, statement of the borrowers, 
etc. Then, in addition, we have the inspectors' report; 
so that they are as fully informed as they well can be 
with regard to loans. 

Q. That would hardly be management? 

A. It is supervision. 

Q. After the event? 

A. After the event. 

Q. As a matter of fact, about the same as with us, the 
directors do not initiate and they do not to any extent 
make regulations under which the officers of the bank 
shall act? 

A. They made regulations. 

Q. That is their by-laws? 

A. The general management, as a rule, suggests the regu- 
lations and they are submitted to the board for approval. 
Appointment of officers, and all that, lies with the general 
management, subject to confirmation by the board. I 
shall be pleased to give you a copy of our book of regu- 
lations if it would be of interest to you. 

Mr. VrEELAND. I shall be very glad to have it. 
By Mr. Bonynge: 

Q. The book of regulations for your own bank? 

A. The book of regulations for our own bank. 
By Mr. VrEELAND : 

Q. There are a few points upon which I wish to get 
the practical information of bankers. How many kinds 
of banks? You have your commercial banks, and you 
have some savings banks separate from your savings 
departments and commercial? 

16 



Banking and Currency Systems 

A. Very few savings banks. 

Q. Those are all government? 

A. No; they are not all government. There are a few 
trust companies, and a few savings and loan companies, 
and there are one or two savings banks. 

Q. Then you have trust companies ? 

A. Yes. 

Q. Do you have what you may call mortgage banks 
separate from trust companies or loan companies ? 

A. Yes, we have mortgage and savings companies. 

Q. You have the postal banks ? 

A. Yes; government banks. 

Q. Have you any private banks ? 

A. Very few. 

Q. You have them? 

A. Yes; but they are so few in number now as not to 
cut any figure. 

Q. Your savings banks — there are more than two gov- 
ernment savings banks left here? 

A. The government savings banks now consist mainly 
of the postal savings bank. There are government savings 
banks in the lower provinces. 

Q. Just the savings banks that are left from the time 
when the Province had charge of the banking laws? 

A. Yes. 

By Mr. Bonynge: 
Q. Is there any general law for the organization of sav- 
ings banks? 

A. No ; the City and District Savings Bank of Montreal 
and the La Caisse d'Economie are the most important 
savings banks we have. 

22561 — 10 2 17 



National Monetary Commission 

By Mr. VrEELAND : 

Q. When did they get their charters? 

A. Before 1850. 

Q. Do they have capital stock? 

A. Yes. 

Q. Who owns the stock — general subscribers? 

A. General stockholders. 

Q. Do you know anything about any special limitations 
upon that bank which do not apply to the commercial 
banks ? 

A. Not at the moment. 

Q. As to the investment of funds? 

A. I can not recall those limitations at present. 

Q. Tell us about your trust companies. 

A. Our trust companies are very much of the same 
order as yours. 

Q. They receive? 

A. A provincial charter generally. 

Q. They have to apply for a special charter? 

A. Yes. 

Q. They are not permitted to do commercial business? 
They do not discount commercial paper? 

A. I think there is nothing to forbid that. 

Q. You say that you have mortgage banks separate 
from your trust banks? 

A. Mortgage and loan companies. 

Q. Corresponding somewhat to our savings and loan 
associations ? 

A. I could not answer that. I could not say that they 
are similar, but we have some mortgage and loan com- 
panies. 

18 



Banking and Currency Systems 

Q. You think 31 is the correct number of chartered 
banks? 

A. Twenty-nine in actual active business. 

Q. As to the number of other banks — of savings banks, 
and trust companies, that is other forms of banks — you 
have not the figures? 

A. Postal savings banks 1,084 a t the close of 1908. 
Dominion government savings banks 18 at the end of 
March, 1908. 

Q. If possible, we should like to have the number of 
banks that have failed of each kind. 

A. Sixteen chartered banks since 1880. 

Q. And the losses to noteholders, if any, and depos- 
itors, if any. 

A. Practically no loss to noteholders; depositors lost 
about $3,000,000. 

Q. I suppose that, where the chartered bank association 
takes over a bank and liquidates it and sustains the loss, 
information is not given freely as to what the loss is? 

A. Knowledge of the loss would be available. 

Q. The bankers usually say there is no loss at all? 

A. When they take over a bank? 

Q. Yes; they never undit a loss. 

A. I am inclined to take exception to that. We have 
had painful demonstrations that losses do occur through 
assisting banks even in your country. 

Q. They have plenty of losses, but I say the bankers 
concerned very seldom admit publicly there are any 
losses. I suppose note holders have never had a loss? 



19 



National Monetary Commission 

A. Yes, they have losses. Not, I, think since 1890. 
Prior to that there were losses. 
By Mr. Bonyngk : 

Q. In 1890 was there any change in the law? 

A. Yes; the banks became joint guarantors of circula- 
tion. 

Q. That is when the fund was created? 

A. Yes ; when the fund was provided for. 
By Mr. VrEE^and: 

Q. What reports are the commercial banks legally 
required to make now ? 

A. They report once a month. 

Q. Is that report published? 

A. That report is published by the government and by 
the leading financial papers. 

Q. Have you a copy of your last report? 

A. Not with me. I can give you a copy. You mean 
the government report of all the banks? 

Q. The annual published report of your bank? 

A. Yes; I will furnish you with one. You have the 
form of government report before you. That is a monthly 
report. 

Q. The report of the government? 

A. Yes. 

Q. It is not published? 

A. Yes. 

Q. But it is published in bulk — all of them together? 

A. With particulars. 

Q. I mean each bank. 

A. No. 



Banking and Currency Systems 

Q. There is no examination of any kind made by the 
government, Mr. McLeod? 

A. None whatever. 

Q. What examination of these banks is made by the 
banks themselves or by the association? 

A. No examination is made by the association other than 
to verify the figures of circulation. The banks have in- 
spectors that inspect the branches, but there is no inde- 
pendent examiner to inspect the general management. 
The general manager is practically supreme in so far as 
the accounts of the bank are concerned. The directors 
supervise the general manager, but directors in Canada 
are the same as they are in your country. 

Q. The directors look at the end of the year? 

A. They are not posted in detail. 

Q. Is it customary for the by-laws of the bank to 
expose any limitation upon the size of loans to any 
individual ? 

A. No; it is not customary. 

Q. All of the savings banks that you have here are 
capitalized ? 

A. The savings banks? 

Q. Yes. 

A. The savings banks we have in Canada outside of the 
chartered banks, the commercial banks, do not cut any 
considerable figure in the business of Canada, and I think 
you may almost eliminate them from consideration in 
that connection. 

Q. And to organize any class of bank application must 
be made to parliament for a charter? 



National Monetary Commission 

A. Yes. 

Q. In each specific case? 

A. In each specific case. 
By Mr. BonyngE : 

Q. All the chartered banks have savings accounts? 

A. I think so. 

Q. Do they make any difference in the manner in which 
they treat the deposits in the savings account and the 
commercial deposits? 

A. None whatever. 

Q. There are no rules or regulations governing the 
investment of savings accounts? 

A. No; there are not any regulations or restrictions. 
By Mr. Weeks: 

Q. Do you think that is wise? 

A. From the experience of Canadian banks with such 
accounts I do not see any objections. We find savings 
depositors no more dangerous in regard to sudden with- 
drawals than ordinary commercial depositors. 
By Mr. Vreeland: 

Q. You mean savings deposits? 

A. Savings deposits. 

Q. But the general rule is, is it not, to have time notice 
for a withdrawal in your savings accounts? 

A. That is the rule, but not the practice. Withdrawals 
are made without notice. 

Q. But under the law you have the right, in case of 
need, to put on the time notice? 

A. I am in doubt about that, so much so that we pub- 
lish our savings deposits as payable on demand. 



Banking and Currency Systems 

Q. From the general statement it would seem that 
about two-thirds of the deposits in Canada are time 
deposits. 

A. The banks generally treat savings deposits as pay- 
able after notice. We treat our deposits on savings 
account as payable on demand. If a depositor wants to 
draw a check against a savings account, we very seldom 
call him to task for drawing the check. 

Q. Is that the general practice? 

A. That is the general practice. And where we make 
the practice of paying checks against savings accounts 
I think it would not be open to us some morning to notify 
the depositor that his account was payable after notice 
instead of on demand. 

Q. What form of certificate or paper do you give to 
a customer upon a savings time deposit? 

A. We give him a savings deposit book with informa- 
tion and regulations printed on the cover. Most banks 
include a regulation requiring ten or fifteen days' notice 
of withdrawals. 

Q. Is that the usual notice for time deposits? 

A. Mr. Vreeland spoke of savings deposits; these are 
deposit receipts as well, and deposit receipts are issued 
payable after notice. As a rule, we pay those without 
notice, but they are undoubtedly subject to notice if the 
bank asks for notice. The great bulk of savings in 
Canada is on the savings deposit with the pass-book sys- 
tem I speak of. 

By Mr. Bonynge: 
Q. What proportion of deposits in the bank are savings 
deposits ? 

23 



National Monetary Commission 

A. I should suppose that about 70 per cent were savings 
deposits. 

Q. Seventy per cent of the total deposits ? 

A. Yes ; that percentage would include savings deposits 
and deposit receipts. 

Q. And time deposits? 

A. What you call a time certificate. 

Q. Can you give the proportion of time deposits as dis- 
tinguished from savings deposits ? 

A. I think I could give that from that return that you 
have there. 

By Mr. Vrbeland : 

Q. It makes a distinction between demand deposits, 
twenty-two millions altogether, and deposits for which 
notice is required, four hundred and sixty-six. 

A. The deposits of the Bank of Nova Scotia subject to 
notice in Canada are $6,944,000; then we have deposits 
outside that 

Q. That is, in your bank? 

A. That is in our bank. I was speaking of deposits 
elsewhere than in Canada. I presume we would have 
about $10,000,000 subject to notice, and we have deposits 
by the public payable on demand in Canada, including 
the savings deposits, $18,234,000; then we have a little 
over $8,000,000 outside of Canada. 
By Mr. Bonynge: 

Q. You pay the same interest on time deposits as on 
savings deposits? 

A. The same interest. 

Q. What rate of interest? 

A. Three per cent. 

24 



Banking 1 and Currency Systems 

By Mr. VrEELANd: 

Q. Do any chartered savings banks in Canada pay 4 per 
cent interest? 

A. Not that I know of. Some of the chartered banks 
pay a higher rate of interest on time deposits, but that is 
against the agreement with the other banks — in violation 
of the agreement. 

By Mr. BonyngE: 
Q. You have an agreement between all the chartered 
banks as to the interest that you shall pay on deposits ? 
A. We have. 

By Mr. WEEKS : 

Q. Mr. Mcl^eod, in your judgment, does the postal sav- 
ings bank system work so that it gives good results to the 
government — to the people? 

A. Well, I do not think it gives good results either to 
the government or to the people. I think the commercial 
banks would serve the people better if there were no postal 
savings banks. 

Q. I understand there are about $50,000,000 of de- 
posits ? 

A. I have forgotten the figures. 

Q. Is it true that this money is used as a current 
receipt by the government? 

A. Yes. 

Q. Do you think that is a wise governmental provision? 

A. There are no reserves kept against these deposits. 

Q. None whatever? 

A. No; there are reserves kept against the legal-tender 
notes, or government notes, but not against the postal 
deposits. 

25 



National Monetary C ommis s io 



n 



Q. Do you think that that system could be changed to 
suit your conditions so it would be of material advantage 
to the people of Canada? 

A. I have not studied the matter closely, but I think 
there is always a danger in the government handling the 
savings, particularly in the matter of reserves. There are 
never adequate reserves kept. That is the experience in 
England. The postal savings in England are inade- 
quately protected by reserves. 

Q. Do you know whether these deposits come largely 
from places where there are no banks, or from the country 
generally? 

A. They come from the country generally. There is 
always a percentage of people that prefer the government 
to a bank. 

Q. What is the rate of interest paid? 

A. Three per cent. 

Q. From the date of deposit? 

A. From the end of the month on which the deposit is 
made. 

Q. Suppose the rate of interest which banks paid were 
4 per cent and the government paid i per cent on postal 
deposits, do you think there would be any material postal 
deposits under those circumstances? 

A. No; I do not. 

Q. Do you think there would be any danger of people 
in time of distress withdrawing the money from the banks 
and depositing in postal savings banks under those cir- 
cumstances? 

A. Yes; then there would be, but I think our people 
are wonderfully quiet under disturbed conditions. 

26 



Banking and Currency Systems 

Q. If that were the case it would simply add to the 
distress rather than lessen it, wouldn't it? 

A. Yes. 

By Mr. Bonynge: 

Q. Have the deposits of postal savings banks been 
increasing in recent years or decreasing? 

A. I think they have been remaining about the same. 
I have not compared the figures with recent years. 

Mr. Knight. They are not increasing. 
By Mr. Vreeland : 

Q. What year were the postal banks established ? 

A. The postal banks have been in existence, I think, 
ever since confederation. 

Q. That was 1867, was it? 

A. About that time. 

Q. Do you know how many postal banks there are now? 
I suppose, however, that the moneys are received at the 
post-office. 

A. Yes. 

Q. How many post-offices receive money for the postal 
fund? 

A. Ten hundred and eighty-four. 

Q. When they were started I notice 4 per cent interest 
was paid, then it was reduced to 3^ per cent, and is now 
3 per cent? 

A. Yes. 

Q. I assume that, when the interest was above the 
rate payable among the banks, the bank rate would 
naturally grow in order still to attract deposits? 



27 



National Monetary Commission 

A. Yes; the banks paid about 4 per cent, I think, at 
that time. The banks would have to pay the same as 
the government. 

Q. You found yourself obliged to pay the same interest 
as the government? 

A. Yes; when we went below the interest paid by the 
government our deposits would fall off very materially. 

Q. Do you know what class of people use the postal 
funds mostly? 

A. All classes. 

Q. Don't they have postal offices in the rural places of 
the country where you do not have branches of banks? 

A. In some cases, I think. 

Mr. Knight. I do not think there is a case, Mr. McLeod. 
I can not recall a place in Nova Scotia. 

Mr. McLeod . The postal savings banks were not estab- 
lished in Nova Scotia until very recent years. I do not 
know how many there are now. 

Q. You must have post-offices in a great number of 
small communities where there are no branches of banks ? 

Mr. Knight. No; there would not be a savings bank 
there. 

By Mr. Weeks : 

Q. You remember there were some government savings 
banks and not postal-savings banks ? 

A. In the upper provinces they had the postal banks 
instead of the savings banks. Recently there has been 
a change, they have been withdrawing the regular savings 
banks and establishing a post-office bank instead. 



28 



Banking and Currency Systems 

By Mr. Vreeland: 

Q. The post-office here receives funds for the postal 
savings bank? 

A. I think so, although I could not answer you defi- 
nitely on that point. 

Q. As to competition for the business, Mr. McLeod, 
you think it is not increasing? 

A. No, it is not increasing. The country is progress- 
ing very rapidly and the banking business of the coun- 
try is increasing, and the government deposits are not 
increasing. They are remaining about stationary. 

Q. The rate that your commercial banks pay as fixed 
by your association is 3 per cent? 

A. Three per cent. 

Q. And are there any of the banks that refuse to accede 
to the general agreement? 

A. No; not at present. 
By Mr. Bonyngb : 

Q. Do any of the banks pay in excess of the amount 
agreed upon? 

A. I think not. 

Mr. VREEivAND. Our report here shows the Northern 
Crown Bank refused to come in under the agreement; 
how is that, Mr. Knight ? You are the secretary. 

Mr. Knight. May I ask you a question? 

Mr. Vreeland. Yes. 

Mr. Knight. Whence do you get that information? 

Mr. Vreeland. That is a report we had made by a 
man who looked over the banking system very carefully, 
and that information was given to him by some of your 
bankers. 

29 



National Monetary Commission 



Mr. Knight. I would not act upon it. You can not 
keep a man straight by an act of violence. If a man 
enters into an understanding with you and violates an 
agreement, it is of no use to introduce an isolated case 
like that as an indication what the system is. 

Mr. VrEELAND. It is very natural to inquire, Mr. 
Knight, how well the agreements of the association can 
be kept, and whether there are violations of them. 

Mr. Knight. Admirable; the Northern Crown is a 
new bank — comparatively new. It is the result of the 
union of two new banks, one of them the Northern Bank 
and the other the Crown Bank, which were managed by 
brothers; both of those men are now out of the bank and 
another man has the management of it. At the time that 
the Northern was run in I understand its branches through 
the northwest agreed to conform to the understanding with 
the other chartered banks. In the center, Winnipeg, they 
said they would not bind themselves in the dilapidated 
places all over the West, and they probably gathered some 
thousands of deposits by offering 3K per cent, or some- 
thing like that. That is the plain story. 

Mr. McLeod. It is simply a breach of agreement. 

Mr. Knight: That is a question of management. It 
has nothing to do with the system. The system is all 
right. It is like quarreling with the bank act. There is 
no quarreling with the bank act. The general manager 
is able to control affairs and do as he pleases without any 
supervision whatever. That is not a fault of the act. 

Mr. Coulson. Banks are clearing houses and have 
clearing-house agreements and understandings with regard 



30 



Banking and Currency Systems 

to rates, but occasionally those rates are broken. Some- 
times an inspection will show a reason for departure from 
the rate, but in the great majority of cases — I should say 
ninety-nine out of a hundred, speaking of chartered banks 
and chartered managers — the agreements are kept. There 
are a few exceptions. 

Mr. VREEivAND. I should say they were very generally 
kept, in fact in a remarkable degree. 

Mr. McXeod. And with regard to the management, and 
the general manager becoming supreme, that is with us 
much as it is with you. You generally have in each bank 
one supreme head. I think it is well it should be so. 
By Mr. VREELAND: 

Q. Do you know the total number of branches in 
Canada ? 

A. I have not the figures. 

Q. You do not have to pay in any additional capital for 
additional branches? 

A. No. 

Q. That is entirely within the province of the bank to 
determine? 

A. Yes. 

Q. Whether they increase their capital or not ? 

A. Yes. 

Q. Deposits are kept at the head office as a rule, are 
they? 

A. No, deposits are left at the branch. That is, the 
accounts of deposits, but we have some branches that 
practically are all deposits. There are branches that are 
practically all loans, and, of course, we draw the deposits 



National Monetary Commission 

from the branch that has no loans and give them to the 
branch that has loans and no deposits. 

Q. Then the transfer of all loans or deposits from 
branches where they have no loans would give the head 
office an opportunity to send them wherever they would 
be needed? 

A. In accounting only. 

Q. The actual transfer of money? 

A. Need not take place. 

Q. Would not take place at all? 

A. No. In fact at the head office we never keep any 
money. It is only accounts. We are merely a transfer 
station. 

Q. The powers of your branch managers, I suppose, de- 
pend upon the size of the branch and upon the manager 
himself? 

A. Exactly; mainly on the capacity of the manager. 

Q. As a rule, at the small points they have authority 
to make loans of about $1,000 or less without reporting 
to the home office? 

A. That would be about it. 

Q. And other points perhaps $5,000? 

A. Yes; and with a successful manager the limit is 
very much larger, perhaps $25,000 or $50,000 or $100,000 
to regular customers, but those things are regulated from 
day to day. If we have a good customer, a man that has 
kept his account with us for a good many years, and 
transactions have always been satisfactory, our man- 
ager knows quite well how far he may go with that indi- 
vidual. Loans to him might not be referred or approved 



32 



Banking and Currency Systems 

before they are made, but the report is made immediately 
afterwards, and if we fail to approve we telegraph or write. 

Q. How are managers selected? I suppose you grow 
them, do you not, in the older banks? 

A. We grow them. They are selected by competition 
really. We endeavor to give the best man the best place. 

Q. You mean competition between your own managers; 
if there is a removal, a promotion would be made? 

A. The best man gets it. 

Q. You select, then, a man who you think will fill the 
place; as you think, the best man? 

A. Yes; if they have a good man in the management 
of a small branch, and there is a vacancy in a larger one, 
he is moved up a peg. 

Q. How nearly are your rates of discount uniform among 
branches? Depends something upon the country, I sup- 
pose? 

A. The rates are fairly uniform at 6 per cent. 

Q. Rates of interest are fairly uniform at 3 per cent? 

A. Rates of interest on time deposits are uniform at 3 
per cent. 

Q. And rates of discount are fairly uniform, you think, 
at 6 per cent? 

A. At places. 

Q. Aren't rates of discount much higher in places in 
the wheat country that is opening up in the west than in 
Ontario? 

A. In some cases they are as high as seven, and I be- 
lieve, with some banks, eight. 

Q. Do rates of exchange go up accordingly? I suppose 
the deposits are small? 

22561 — 10 3 33 



National Monetary Commission 

A. The deposits are the same — 3 per cent. I think we 
would take, speaking of ourselves, an account at Van- 
couver on the same terms we would take an account 
at Toronto and where the interest is 7 per cent and 8 
per cent. These rates are applied to small loans, and 
for our own bank I do not think we have a loan at 8 per 
cent in the west. We adhere to the legal rate of 7 per 
cent. 

Q. In small communities, where there is only one branch, 
rates might be a little higher? 

A. Yes; that would apply to the eastern country as 
well. 

Q. To what extent is there competition among 
branches; how do they compete? Your rates of in- 
terest and your rates of discount are about the same, I 
see. How do you compete? What are the inducements 
that you offer for new business? 

A. Each bank is competing with the other for a share 
of the business as much as two grocery stores compete for 
a share of business in that section. One has nothing 
better to offer than the other, perhaps. It is generally a 
case of personal popularity of the local manager and the 
influence. 

Q. Do not these branches sometimes get business by 
offering increased inducements, free exchange? 

A. Quite often. 

Q. Do they not have some leaders to locate the custom? 

A. Yes. 

Q. They go to the customers? 

A. That is quite true. 



34 



Banking and Currency Systems 

Q. But as a rule the amount of business is determined 
by the popularity of the people running the bank and its 
reputation ? 

A. Yes. 

Q. All those things? 

A. Yes. 

Q. And not by better rates of interest or lower rates 
of discount? 

A. As a rule it is the former influences that govern. 

Q. What sized towns would you consider entitled to 
one or more branch banks ? 

A. We would consider a town with a thousand people 
entitled to a branch bank. 

Q. Would there be likely to be more than one branch 
in a town of that size unless they had some special busi- 
ness? 

A. In some places there are three or four. 

Q. There would be some special reason — a large busi- 
ness of some kind, that is a center of grain shipments, 
or something of that kind? 

A. It is more often a case of some bank putting 
in a branch and the other banks going in to protect the 
accounts they have in that section. There are places 
with not more than 250 inhabitants with one or more 
banks. 

Q. There was some special reason? 

A. No other reason than the reason I give, that some 
bank has started in there to cut off another bank from 
some of its business, and rather than lose its business the 
other has gone in and established an office. 



35 



National Monetary Commission 

Q. What amount of deposits would you say justified 
a branch bank? 

A. About $200,000 to $250,000 of deposits. 

Q. In these small villages you speak of you would not 
expect to get that amount? 

A. Sometimes we do. We might start in and it might 
be a year or two before we reached even a hundred thou- 
sand deposits, but they gradually grow until we might have 
$200,000 or $300,000 or $400,000 in a surprisingly small 
place. 

By Mr. BonyngE : 

Q. You have some branches where you have no deposits ? 

A. No; there are no branches where there are no de- 
posits. There are branches where we have very small 
deposits, so small that they might, perhaps, be almost 
negligible. 

Q. I thought you spoke some time ago of branches that 
had simply loans and no deposits? 

A. That was practically all loans and practically no 
deposits, while another might have practically all deposits 
and practically no loans. 
By Mr. Vreeland: 

Q. In the business of a central bank like the Bank of 
England changes are made from time to time in the rates 
of discount. Is that done by your association? 

A. The association does not deal with rates of discount 
or commissions. 

Q. They deal only with rates of interest on deposits ? 

A. Rates of interest on deposits are fixed practically by 
association. 



36 



Banking and Currency Systems 

Q. I should think that would be a fruitful field for 
competition among the banks. 

A. I do not think it would be well to have competition 
shut off by agreement. 

Q. Is there, as a matter of fact, a difference in rates 
offered by the banks on discounts? 

A. Not a very great difference. If a bank finds it has 
more money than it should have it might possibly go down 
to 5 per cent. We have several accounts at 5 per cent, 
and I know some of our neighbors have the same. 

Q. Then for good accounts the rates of discount would 
be quite an element in attracting custom? 

A. Yes; quite an element. 

Q. But you say that there is no understanding in your 
association as to rates of discount. 

A. Absolutely no understanding either on those or on 
rates of commission. 

Q. Rates of commission? 

A. Absolutely no understanding. 

Q. Commission upon what? 

A. On collections and domestic exchange. 

Q. Inasmuch as that is all left open? 

A. And foreign exchange as well. There might be some 
understandings by banks in certain sections of the country 
as to rates of exchange, but there are no understandings of 
that kind within the association. 

Q. You have two classes of deposits in the commercial 
banks; that is, your current deposits and current accounts 
that are subject to check? 

A. Yes. 



37 



National Monetary Commission 

Q. And your deposit accounts that are upon time and 
upon which interest is paid? 

A. Yes. 

Q. You have those two general divisions? 

A. Yes. 

Q. Is interest paid upon current accounts? 

A. Rarely. 

Q. Checking accounts? 

A. Rarely. 

Q. It is to some extent? 

A. It is to some extent. 

Q. In what portions, or in what cities, or in the rural 
districts ? 

A. Mostly in the cities. 

Q. Upon what is that based, upon monthly balances? 

A. Generally on a monthly balance. 

Q. What is the ordinary rate, the same as other interest 
rates, or smaller? 

A. A lower rate, generally 2 or 2% per cent. 

Q. How often is that changed by the association? 

A. That is not dealt with by the association. 

Q. Then your understanding relates merely to time 
deposits ? 

A. What they call time deposits. 

Q. And not current deposits? 

A. Yes ; we could pay 3 per cent on our current deposits 
if we wished to do so. I must say that the practice of 
paying interest on current accounts is not general to the 
same extent as it is in your country. We very rarely have 
an account. It is very rare. 



38 



Banking and Currency Systems 

Mr. Knight. I do not think there is one case in a thou- 
sand of a current account. 

Mr. McLeod. I think I should be well within the truth 
in saying that we do not pay interest on i per cent of our 
current accounts. 

Q. According to your statement to the Government here, 
about two-thirds of the deposits are put down as drawing 
interest. About two-thirds are put down as being sub- 
ject to notice, that means interest, I suppose, in all those 
accounts, or most of them? 

A. Yes. 

Q. Of the other third, a large proportion, of course, 
would consist of current accounts. Since interest is paid 
on them also, that brings the proportion of your total 
deposits upon which interest is paid up to much more 
than two-thirds? 

A. Yes ; it would bring it up. 

Q. I suppose it would be a mere guess as to the per- 
centage? 

A. Yes; for our own bank I can give you actual figures. 

Q. Would you mind giving them? 

A. I will give you our annual statement, with the 
actual figures at the end of last year. 

Q. How generally is the checking system used with you? 

A. The checking system against savings accounts? 

Q. No; how largely is business done by checks instead 
of by cash? 

A. Very largely. 

Q. Is that true in the smaller towns and cities as well as 
the large cities? 

A. Yes. 

39 



National Monetary Commission 

Q. In towns of 500 inhabitants, wherever there is a 
branch bank, they usually do their business by check? 

A. Yes. 

Q. Are pay rolls usually paid by check or in cash? 

A. In cash generally. You speak about small towns ; in 
all small towns where there are branches practically every 
individual in that community will have an account with 
the bank, and he likes to pay his small bills by check, 
sometimes to the annoyance of the bank, but the checking 
system is very generally used. 

Q. Of course, it would be a mere estimate on your part; 
could you give an estimate as to what proportion of the 
total business is done by check and what by cash? 

A. I should suppose, speaking roughly, that 90 per cent 
of the business is done by check. 
By Mr. Bonynge : 

About the same as ours. 

A. You are a little above that, are you not? 
I think we are about 90 per cent. 

A. Speaking of your whole national system I think it 
amounts to more than that. The checking system is not 
quite as general with us as it is with you. 

Q. Do you fix any limit for the account? That is to 
say, do you take any amount for a checking account, or 
does the depositor have to keep a certain balance? 

A. Generally we take any amount he chooses to give us. 

Q. You attend to the business regardless of the amount 
of balance he carries ? 

A. We do his business regardless of the amount of bal- 
ance he carries. 



40 



Banking and Currency Systems 

Q. Do you make any charge for keeping the account 
unless he keeps a certain balance? 

A. Practically nothing. 
By Mr. Vree^and: 

Q. There are no provisions in the Canadian law in rela- 
tion to reserves? 

A. No. 

Q. That is, as to the amount of reserves? 

A. No. 

Q. There is a provision, is there not, that of the cash 
reserves you keep on hand 40 per cent shall be Dominion 
notes? 

A. Shall be in legal tenders, yes. 

Q. It provides specifically it shall be Dominion notes, 
does it not? 

A. Dominion notes and legal tenders are synonymous 
terms. 

Q. Gold is a legal tender? 

A. We call them legal tenders. We call paper money 
legal tenders. 

Q. That is synonymous with Dominion notes? 

A. Yes. 

Q. What proportion of reserve do the banks generally 
find it necessary to keep on hand at their head office and 
at their branches? 

A. The proportion has increased materially in the last 
ten or twelve years. Before that the reserve got down, I 
think, to about 7 per cent, in some cases 3% per cent. 
Now the reserve averages about 1 5 per cent. 

Q. In cash? 

A. Yes. 

41 



National Monetary Commission 

Q. Is the bulk of your receipts kept at the home office or 
head office? 

A. More at the bank than at the branches. As I said 
before, the head office never retains any cash. It is only 
a transfer station. 

Q. In case you have need of reserve ? 

A. It is generally at the local branch. We ordinarily 
keep our reserves where they are most likely to be re- 
quired. 

Q. I supposed, upon the theory of your banking with a 
head office, that the cash reserves were kept largely at 
the head office with a view of placing them anywhere 
needed. If reserves are needed they are needed usually 
in cash. 

A. In twelve years I have not had the custody of $100 
of the bank's money. 

Q. Where are the bulk of the cash reserves kept at your 
bank? 

A. They are kept at the branches in proportion, as near 
as we can, to where the deposits are likely to be called for. 

Q. You mean by that, where customers are most likely 
to ask for loans? 

A. No; when loans are asked for they are generally set- 
tled for with our banks. Often we make a loan and after 
that loan passes over, checks against that loan very likely 
come in through some other bank and come in through 
the clearings. We settle with the clearing house every 
morning. If a loan is made to a party out of town the 
checks would be likely to come through a competitor and 
would be settled for by a draft on Montreal, or a draft on 

42 



Banking and Currency Systems 

Toronto, or a draft on Halifax, or some other point; so the 
reserves are not called for in that connection. 

Mr. Knight. Take Montreal — it is necessary to keep 
a large proportion of legal tenders or reserves, whichever 
you like to call it, in Montreal for a day's settlement. 
The settlement with us is effected in these specific legal 
tenders. In the clearing house you have got to settle 
with legal tenders or gold. 

Q. As a rule your banks would keep more cash at points 
where these exchanges are made in large amounts? 

Mr. Knight. Yes. 

Q. You would naturally keep more cash in Montreal 
and Toronto and other large points than in other places ? 

Mr. CouivSON. Exactly — at the clearing-house centers. 

Q. You say, Mr. McTeod, that the banks generally carry 
15 per cent cash reserve now? 

Mr. Coulson. I think last month the figures were about 
1 3 to per cent, or something of that kind. 

Q. For all the banks together? 

Mr. CouivSON. For all the banks together. There is an 
understanding with the banks of the association that we 
are to keep 15 per cent in cash. It is voluntary; it is an 
understanding among us, and if they get below that the 
association might call their attention to it. 

Mr. Weeks. You think your reserve is sufficient to 
properly protect the business which the banks of Canada 
are doing? 

Mr. MclvEOD. I think it is sufficient to protect the busi- 
ness of any bank that is doing a prudent and legitimate 
business. That is, if its loans are made in a proper way. 



43 



National Monetary Commission 

In other words, if it is a sound bank generally, that 15 
per cent is sufficient under our conditions. 
By Mr. Vreeland : 

Q. What is the total amount of Dominion notes 
issued? 

A. I can not answer that now offhand. 

Q. The total amount issued? 

Mr. Coulson. I think we had better furnish you that 
correct. 

Q. Dominion notes, if I remember your law, up to the 
amount of $30,000,000 are protected by at least 15 per 
cent gold reserve? 

Mr. Coulson. Yes. 

Q. And above that it must be full reserve? 

Mr. Coulson. Yes; 15 per cent up to $30,000,000 and 
Dominion debentures, and over and above that dollar for 
dollar in gold has to be kept. 

Q. I understand as to the funds to be kept by savings 
banks no reserve is required by law? 

Mr. Coulson. There is a reserve against that also, a 
separate reserve. A separate fund and a separate reserve. 

Q. Dominion notes are payable upon demand, are they? 

Mr. McXeod. Yes. 

A. In gold. 

Q. Or silver? 

A. Gold. 

Mr. Coulson. Silver is not a legal tender here beyond 
$10. 

Q. Dominion notes are issued in ones, twos, threes, and 
fours, and then what do they skip to next? 



44 



Banking and Currency Systems 

A. Ones and twos and then the larger numbers, twen- 
ties and hundreds and multiples of hundreds and up to 
thousands, and then they issue special; they have a spe- 
cial issue for the bank, legal tenders, for paying exchanges. 

Q. Then the bank notes are not issued below five? 

A. The bank notes are not issued below five, and above 
in multiples of five. Only in multiples of five. 

Q. Is it the practice of your bank to keep what you 
may call a secondary reserve in the form of government 
securities or other securities? 

A. Yes; banks generally have quite a large amount in 
other securities, but very seldom in government securities; 
generally in railway securities and municipal securities. 

Mr. Coulson. Many of our banks keep a line of second 
securities in United States securities and railroad bonds. 
We usually keep large lines of sterling securities that are 
not as readily available. They are available enough, but 
very often in time of pressure it is difficult to get money 
from those. 

Mr. McXeod. Each bank formulates its own policy. 

Q. I see all of your banks together up to July, 1909, 
had due from agencies, other than from other banks, the 
amount of $10,000,000. 

A. I am afraid that section is not very clear, Mr. 
Vreeland, for some banks include in it balances due by 
their own agencies abroad, and others include only the 
balances due by other banks. 

Q. They do not all figure that alike? 

A. They do not all figure that alike. Our government 
return is defective in that respect. 



45 



National Monetary Commission 

By Mr. BonyngE : 

Q. Did you count the amount that you have on deposit 
with the Dominion as security for your notes as a part 
of your 15 per cent reserve? 

A. No; we have it down at the foot of our list. 
By Mr. VrEELAND : 

Q. You show the total Dominion and provincial gov- 
ernment securities to the amount of $12,600,000. Do 
you have any bond issues in the Dominion? 

Mr. Coulson. They do not issue any special bonds for 
banks. It is the ordinary issue. 

Q. That is a bond? 

Mr. Coulson. Yes. 

Q. They do have a bonded indebtedness ? 

Mr. Coulson. Yes; they do have a bonded indebted- 
ness. 

Q. What is the amount of the Dominion bonded in- 
debtedness ? 

Mr. McLeod. It is very heavy. 

Mr. Coulson. I can not remember the figures. The 
bulk of that indebtedness is in Great Britain. 

Q. You say $22,000,000 of municipal securities and 
British or foreign securities other than Canadian. Do 
you consider all of those a secondary reserve upon which 
you could get the cash at short notice? 

A. We so regard them and so place them in our state- 
ments, but we have gone through several panics and we 
have never realized on those securities. No doubt they 
would be available in case of absolute need. 

Q. I was speaking from the standpoint of cash? 

46 



Banking and Currency Systems 

A. Convertibility. 

Mr. Coulson. The money that could be borrowed on 
them; I think you could always go out and borrow money 
on the securities unquestionably. 

Mr. McLeod. I do not agree with you. 

Q. In case of a widespread demand for money in your 
banks, which would you consider most immediately avail- 
able to bring in cash, commercial paper of any kind, or 
these bonds ? 

Mr. Coulson. A Canadian bank would never think of 
turning out any commercial paper. It is done occasion- 
ally. The bank does cover this kind of business paper 
in Canada. 

Mr. Coulson. I am talking about uniform conditions 
to provide against extreme conditions. You can not 
profit and do business anticipating all the time; you 
would have such a time as you had in 1907, a universal 
suspension. 

Mr. McLeod. Our experience in 1907 was somewhat 
different from Mr. Coulson 's. We kept the lid on as 
tight as possible, but endeavored not to press it too hard. 
We have applications from customers, the same as Mr. 
Coulson has, and recognized a few times in 1907 that we 
could not reduce loans in the aggregate. Every manager 
is anxious to extend his business, and he will have to pay 
out money to good customers, in the hope of holding their 
business in the future, so that in my opinion it is prac- 
tically impossible to reduce loans in a time of pressure, 
such as 1907. That is, while the pressure is acute. If 
it continued for several months I have no doubt loans 



47 



National Monetary Commission 

could be reduced, but it is scarcely practicable to reduce 
loans in time of pressure. Your municipal securities are 
available practically only to borrow against. I would 
not say that that was true of 1907, but it probably would 
have been true if we had allowed some banks to fail, as 
we might have allowed them to fail, instead of bolstering 
them up and liquidating them with open doors. Cash 
and balances abroad constituted about the only effective 
reserve. 

Q. You speak of such extreme conditions? 

A. Yes. 

Mr. Coueson. Our eastern commercial demands were 
reduced and we paid off 80 per cent of them. 

Mr. McLeod. That would be through the west, but 
there were demands all over we could not ignore. 

Mr. Coulson. The money we got from our eastern 
people went to the west to meet the crop and pay our obli- 
gations there; although they were heavy they were all 
complied with. There was no particular disturbance, so 
far as our payments were concerned, in the east. 

Mr. McLeod. The point I wish to make is, a bank to 
go on and do business must have some regard for the re- 
quirements of its customers, and in a time of stress it is 
impracticable to reduce loans materially. Your only 
reliance for cash reserves consists of cash in hand and 
balances abroad, or borrowing facilities abroad, if a 
panic is general ; and by extending over London and other 
financial centers you are cut off from borrowing against 
securities. 



48 



Banking and Curr ency Systems 

Q. Canada never has had, so far as I remember, what 
you may call a currency panic similar to that in the 
United States in 1907? 

Mr. Coulson. No. 

Q. You may have had runs upon individual banks or 
upon branches; doubtless have, I suppose. You never 
have had a widespread currency panic as we had. 

Mr. McLeod. Our people do not seem to have got the 
run habit. 

Mr. Coulson. They do not care. 

Q. One very good reason for it appears here, that of 
taking over banks instead of permitting them to close 
their doors in the ordinary way, and having an association 
and liquidating them; their notes are good, their deposits 
are secure; of course all of those things help to preserve 
confidence of the public in your banking system and do 
away with runs, but perhaps in a country the size of the 
United States it would be impossible for us to run upon 
those lines. I mean to have an association and keep track 
of the banks and take them over and liquidate them. 

Mr. Coulson. The Canadian banking system has never 
been in such a stress as you have. If we had been run 
upon to anything like the extent you were in 1907 I do 
not know where we should have been. We should sim- 
ply have been in a state of universal suspension until we 
had made some headway. The standing of all the banks 
is such, and their securities so widespread, that it would 
be almost impossible to create a want of confidence in 
them such as you suggest. 

Q. On account of their mutual support largely ? 

22561°— 10 4 49 



National Monetary Commission 

Mr. Coulson. On account of their strong positions, 
with their large paid up capital and large paid up reserve. 
None of the largest banks have ever had any trouble in 
that way. Take, for instance, the Bank of Montreal. 

Q. Is it your opinion that confidence is created by 
supporting and standing by each other, and by liqui- 
dating banks and paying off the depositors? 

Mr. Coulson. That all helps, and we have a large paid 
up capital and paid up reserve, and upon that the gov- 
ernment returns are issued from month to month and the 
people can use them. 

Mr. McXeod. They are not worth the paper they are 
written on. 

Mr. Coulson. I say ninety-nine out of every hundred 
are fairly correct. I will not admit any such laxity in the 
government as to say they are not worth the paper they 
are written on at all. 

Mr. McLeod. I do not regard them as worth the paper 
they are written on, because there is no supervision. 
In the cases of the failed banks they have them made with 
every degree of falsification, and there is no check or 
supervision. When confidence is shaken these facts will 
become apparent to the public and will impair confidence 
rather than help the situation. Our records compiled 
from bank statements are valueless on account of the 
misstatements by the many banks that have failed. 

Mr. Coulson. Can you tell me where a bank inspection 
has ever prevented a failure? 

Mr. McLeod. In the United States. 

Mr. Weeks. We are thoroughly committed to govern- 
ment inspection in our country. 

50 



Banking and Currency Systems 

Mr. Coulson. There is supervision here. There is su- 
pervision within ourselves. You say the government 
report is not worth the paper it is written on. 

Mr. McLeod. I made that statement, but it may be 
subject to some modification. I adhere to my opinion 
that positive external inspection is an important feature, 
an indispensable feature, of every banking system. 

Mr. Weeks. We are committed to government inspec- 
tion of our national banks and we may conclude from 
what has been said that Mr. McLeod would favor that 
from his standpoint in Canada and Mr. Coulson would 
not. 

Q. Is there any connection between the amount of 
bank reserves and your bank rates of discount? I mean 
when your cash reserves are getting small do you increase 
your rates of discount for the purpose of building up or 
diminishing loans ? 

A. No ; that is very seldom done. 

Mr. CouivSON. Two years ago we put up all rates on 
commercial accounts. The sentiment was to reduce every 
commitment. 

Q. That was the sentiment among the members of your 
association, you mean? 

Mr. Coulson. Yes; we did not want people to come in 
and make new commitments. 

Mr. Hubbeu. (cashier Marine Bank, Buffalo, N. Y.). 
Did not the element of profit come in there a little bit? 

Mr. Coulson. True; of course it did. But that was 
not a feature. Our rate changed very little with our 
commercial customers. For a year we did charge them, 



51 



National Monetary Commission 

but that was to keep them from wanting more than their 
ordinary requirements. 

By Mr. VrEELAND : 

Q. There are no requirements in the laws about gold as 
a reserve? 

A. No; with regard to the increasing of the rate, I 
think I am correct in saying that to 75 per cent of bor- 
rowers the rate would not be disturbed. 

Q. That is, the regular customers of the bank, you mean ? 

A. Yes; I want to make the point, in Canada as dis- 
tinguished from your system, that our rates are more even. 
We are not subject to anything like the fluctuations that 
come to your country owing to your present imperfect 
system. 

Q. You refer more especially to New York City? 

A. No; I think it applies generally throughout the 
country. 

Q. I think our rates run pretty even outside of large 
centers. 

A. Yes; I think that would be correct. 

Q. To regular customers? 

A. Yes. 

Q. There is not much change in them? 

A. That is about the same as here. 

Q. Do your banks make any attempt to acquire gold 
for any purpose? 

A. No. 

Q. You have no special use for it? 

A. We have no special use for it except for reserves. 

Q. They have nothing to do with your note issues and 
no certain reason for your paying gold? 

52 



Banking and Curr ency Systems 

A. The operation of the law in regard to holding 40 per 
cent of legal tenders is to preclude our acquiring any con- 
siderable amount of gold. 

Q. Is to prevent it ? 

A. Yes ; if we acquire the gold we have to acquire legal 
tenders practically to the same proportion. 
By Mr. Bonynge : 

Q. Have you any means of knowing how much gold 
there is in circulation in Canada? 

A. I could give you the amount. 

Mr. Coulson. We haven't a Canadian circulation of 

gold. The gold in circulation is the United States gold. 

» 

By Mr. Vreeland : 

Q. Very little of it seen? 

A. Very little gold in actual circulation. 

Q. The money that is carried in the pockets of people 
would be silver and your Dominion notes of small sizes 
and your bank notes ? 

A. And the bank notes. 

Q. Very little gold in circulation? 

Mr. Coulson. Very little. 

Q. Your banks make no attempt to acquire or keep 
gold. It has no special relation to the system except that 
it is the standard of value and your Dominion notes are 
redeemable in gold ? 

A. Yes. 

By Mr. Hubbeix: 

Q. Mr. Mcl^eod, do you have a prevailing rate of ex- 
change here? Is there a prevailing rate of premium and 
discount between the banks? 

53 



National Monetary Commission 

A. That rate fluctuates. 

Q. Is that a matter of daily market? 

A. Yes; a matter of daily market. 

Q. Between the banks? 

A. Between the banks. 

Q. How high does that reach? 

Mr. Coulson. Don't ask us. Go back to 1897. I 
think it was as late as five years ago we had some collec- 
tions due near Boston and our correspondent had sent 
up clearing-house certificates on a Boston clearing house, 
and I telegraphed him they were no use to us, and he 
telegraphed back to cancel the arrangement. 
By Mr. Vreeland : 

Q. We will take up note issues, Mr. McLeod, and ask 
you a few questions about that. The amount that can 
be issued is the paid in capital of the bank besides the 
emergency act of 1908. 

A. The emergency act. 

Q. And with the further exception of the Bank of 
North America, which can issue up to 75 per cent of its 
capital. 

A. Yes. 

Q. The note holders have a security and a first lien 
upon the assets of the bank? 

Mr. Coulson. Yes; the assets of the bank. 

Q. They have also the 5 per cent of total circulation in 
hands of government? 

Mr. CouivSON. It is 5 per cent, calculated on the highest 
amount circulated during the year. 
Q. By each bank? 



54 



Banking and Currency Systems 

Mr. CouivSON. By each bank. It is adjusted every 
year. 

Mr. Weeks. Has the emergency circulation ever been 
used? 

Mr. Knight. A little last year. 

Mr. McIyEOD. I do not know who did use it, and I do 
not want to know. 

Q. Mr. McLeod, your business in Canada is increasing so 
fast that, unless you materially increase your bank capital, 
I should think you would soon get to a point where you 
would have to have more circulation than you can get; 
what are you going to do about that? 

A. That is a problem we shall have to meet, and I pre- 
sume it will be up for discussion at the same time as the 
modification of the bank act. The act is under considera- 
tion now. 

Mr. CouivSON. The true way is to increase the capital. 

Mr. MclyEOD. No bank not on the verge of insolvency 
would use that emergency circulation. 

Q. To what extent are your notes legal tender? 

A. They are not legal tender at all. 

Q. Aren't banks obliged to receive the notes of other 
banks ? 

A. Well, in payment of debts they do receive them. 
They are not obliged to receive them. 

Q. They are not obliged to? 

A. No. 

Q. Then if a customer comes in to pay his notes at your 
bank you are not obliged to receive the notes issued by 
another bank? 

A. No. 

55 



National Monetary Commission 

Mr. Coulson. You can demand legal tender. 

Q. They are not made legal tender by mutual ar- 
rangement? 

A. No. 

Q. They are only legal tender to the bank that issues 
them? 

A. Yes; they are an offset. 

Q. Limited to that? 

A. Yes. 

Q. What is the government tax upon your bank notes? 

A. No tax. 

Q. No tax whatever? 

A. No; we are not taxed at all, except in the matter of 
the provision for 40 per cent of our reserve in legal tender. 

Q. Who pays the expenses of issuing them? 

A. The issuing bank. 

Q. Each bank? 

A. Yes. 

Q. Does the Dominion make the arrangement for their 
printing ? 

A. Each bank makes its own provisions under the super- 
vision of the Banking Association. 

Q. But each bank makes its own arrangement about 
their design and the total of the issue? 

A. Yes; they are issued to the bank direct on the ad- 
vice of the association. That latter arrangement is under 
a recent date — the last six or seven years. 

Q. What is the average time that they stay out before 
they are redeemed? 

A. I think the average life of a note is less than a year. 

56 



Banking and Currency Systems 

Mr. Bonynge. Sixty-six days is the limit. 

Mr. Knight. You refer to a different matter. 

Q. Are you able to keep notes in circulation in Toronto? 

A. I think there is a large amount of the bank notes in 
circulation in Toronto. Perhaps the percentage would 
be as great as in the country. The distance from the 
centers, of course, tends to leave the notes out longer. 
They are longer in transmission. 

Q. You have so many notes in * circulation in Canada 
that the average time each note would stay out must be 
very short ? 

A. We could only estimate. 

Q. They would come back to the clearing house? 

A. Yes. 

Q. The same as checks ? 

A. Yes. 

Q. And presented to you for payment? 

A. Yes. 

Q, So the average time of circulation in the city of 
Toronto would be very small ? 

A. Would probably be small ; yes. 

Q. Whereas, say, in the early distribution it would not 
take them long to get to points where they would be 
redeemed? 

A. Yes. 

Mr. Coulson. Take the average circulation — we have 
had some estimates on that during the actual season of 
circulation, that is about sixty days. 

Mr. MclvEOD. From the time you put it out? 

Mr. CouivSON. Yes. 



57 



National Monetary Commission 

Q. All of your notes are redeemed about six times a 
year? 

Mr. Coulson. I am speaking of the Toronto demand; a 
note stays out about an average of sixty days, and that 
is the case particularly in the west. It is coming in and 
going out, and the average is about sixty days. 

Mr. McXeod. I do not know any way you can get 
reliable figures on that better than to take an issue that 
you have decided to cancel and take an average time 
that issue would be out. At the present time those figures 
would compare unfavorably with the figures that would 
have been made ten years ago, before we got up to the 
maximum of our circulation, and for the present time 
they are not reliable. I do not think the average circula- 
tion of a note is as long as Mr. Coulson's estimate. 

Mr. Coulson. We have had some experience of pay 
rolls on some of the railway systems, and the average of a 
circulation paid up from one end of the country to the 
other is just thirty days, and we have tested that on two 
or three occasions. That is for our own guidance, but 
when you come to the moving of a crop where money is 
paid out to the customers, of course, the bank gives each 
man a ticket with two or three dollars, and he then takes 
it to the bank or to the merchant, and the merchant may 
have it for some little time. The time it will take getting 
back to the redemption center will average nearly sixty 
days. 

Mr. McLeod. Sitting here discussing this subject has 
brought back to me one of my early experiences in 
banking. It was in an isolated community where the 



58 



Banking and Currency Systems 

operations were buying and shipping grain. The bank 
had a capital of $100,000. Under the Provincial law 
it had the right to issue $3 to $1 of its capital in circula- 
tion. On one Saturday evening all our circulation was 
outstanding. Over Sunday the winter set in, the harbors 
froze up, the vessels had to put to sea, loaded or partially 
loaded. By the middle of the week our circulation was 
much reduced; we had received exchange for the car- 
goes and within a month the circulation was down to 
normal; the notes had gone out, had paid the farmers for 
the grain, they had been paid by the farmer to the shop- 
keeper and by the shopkeeper deposited in the bank. 
The shopkeepers had bought out bills on London, thereby 
paying their debts abroad, and the whole operation was 
completed. When an elastic currency is spoken of, I 
often think of that example of elasticity. 
By Mr. Weeks: 

Q. What would you do if Mr. Coulson appeared in your 
bank some morning with a million dollars of your bills ? 

A. Pay the bills. 

Q. How would you pay them? 
By Mr. VrEE^and : 

Q. Draft on London ? 

A. I think we could satisfy Mr. Coulson in a very short 
time. 

Mr. Coulson. I think so. 

Q. Suppose he did not want to be satisfied; what could 
he demand? 

A. He could demand gold or legal-tender notes. 

Q. I suppose he could limit his demand to two things, 
could he? 

59 



National Monetary Commission 

A. Yes; he could limit his demand to legal tender. 

Q. You would not have an amount like this in just gold 
at any one of your offices, Toronto for instance? 

A. Yes; practically. 

Q. Take the Winnipeg office, for instance. 

A. No; that is a very extreme case. There is no possi- 
bility in the world that anyone could get so much of our 
notes for presentation at one time. 

Q. I am assuming some person is vicious and wants to 
damage you. 

A. Yes. 

Q. I want to see how you would get out of that, what 
would happen? 

Mr. Coui,son. We would go to our neighbor and try to 
get them to sell an exchange on New York and get the 
money on it. 

Q. That is not legal tender. 

Mr. Coulson. If I was in that position, I should go to 
the Bank of Montreal straight and say I am short, I have 
the money in London, I should buy my exchange and give 
him the money. If your credit is good, there is no trouble 
about it. 

Mr. Weeks. What you would do would be to stand by 
one another under those circumstances ? 

Mr. Coulson. Undoubtedly. 

Mr. McLeod. If that should happen, of course, we 
should go to another bank — that would be a most extreme 
case. We should say : " There is a party that has collected 
our notes until he has acquired a million of them; the 
man comes in and demands legal tenders against us; we 



60 



Banking and Currency Systems 

will pay you legal tenders in Winnipeg, Montreal, St. 
John, or Halifax, or we will transfer funds to your credit 
in New York or London. We want the legal tenders to 
use now." Or we might say: "We will replace the legal 
tenders as soon as the express companies can get the 
legal tenders here." There would be no difficulty about 
that matter. 

Mr. Coulson. The other banks would simply come to 
the rescue. 

By Mr. Vreeland : 

Q. There is absolutely no tax on this circulation? 

A. No tax. 

Mr. Coulson. There was in times past. 

Q. When was that discontinued? 

Mr. Coulson. That was discontinued thirty years ago. 

Q. What tax do you pay to the government? 

Mr. Coulson. We pay none now on the circulation. 

Q. You would be obliged to keep a tax reserve. I do 
not see how you figure it as a tax on circulation. 

Mr. Knight. It takes the place of a tax. 

Mr. MclvEOD. The interest is the tax. 

Q. I am asking if it costs the bank anything? 

A. No, it does not. 

Mr. Coulson. It saves the government interest. 

Q. The government saves interest on that amount of 
the Dominion notes, but I am talking about your bank? 

Mr. Coulson. It costs us nothing. 

Q. There is absolutely no tax upon circulation? 

Mr. Coulson. No, sir. 

Q. Direct or indirect? 

61 



National Monetary Commission 

Mr. Coulson. No. 

Q. What Dominion tax do you pay to the government? 

Mr. Coulson. We pay it to the government. 

Mr. McLeod. Provincial governments and cities. 

Q. Do you pay anything to the Dominion government? 

A. Nothing. 

O. No regular tax at all? 

A. Nothing. 

Q. If a bank fails to pay its notes, they immediately 
commence drawing interest, do they not? 

Mr. Coulson. Yes; after a bank has suspended. 

Q. That has the effect of taking them out of circula- 
tion? 

Mr. Coulson. Yes. 

Q. Banks or some one else would commence accumu- 
lating them and holding them? 

Mr. Coulson. Yes ; they keep them until the suspended 
bank is in a position to pay them. 

Q. I assume the banks generally hold them? 

Mr. Coulson. Yes. 

Q. And get 5 per cent interest? 

Mr. Coulson. And get 5 per cent interest. 

Q. Until they are paid by the 

Mr. Coulson. Receiver or liquidator. 

Q. You are not obliged to hold any reserves against 
your notes ? 

Mr. Coulson. Not specially, except that 5 per cent 
that is held in the redemption fund. 

Mr. McLeod. And that is not available. 



62 



Banking and Currency Systems 

Q. Are banks liable for the notes of failed banks, or 
rather banks having notes of failed banks, beyond 5 per 
cent? 

Mr. Coulson. Yes. 

Mr. McLeod. After the 5 per cent fund is exhausted 
further calls would be made on the banks by small per- 
centages. I think the percentage is limited — a certain per 
cent within one year. We are not guarantors for actual 
payment. I think it is not to exceed 1 per cent per year. 

Q. The information which was given us was that if the 
assets of the bank were not sufficient, and if the 5 per 
cent was not sufficient primarily, the other banks would 
be guarantors of the notes? 

A. That is correct. 

Q. And on that they are to pay 

A. So much per year. 
By Mr. Bonynge : 

Q. Until you have made up the full amount? 

A. Yes. 

Mr. Knight. Of course, you know that fund has never 
been touched since it was created? 

Mr. Vreeland. The 5 per cent fund? 

Mr. Knight. Yes. 

Q. Tell us how soon these notes of failed banks would 
be paid out of the redemption fund. That is, how soon 
would the notes be paid from the redemption fund after 
the government had judicial notice of the failure of a bank? 

A. That, as has just been said, never has been put to 
a practical test. 

Mr. Coulson. The first moneys collected are applied in 
redemption of notes issued, and whatever proportion they 

63 



National Monetary Commission 

may bear to the entire issue, the liquidator notifies the 
banks that on a certain day he will pay that proportion 
and interest. 

Mr. McLeod. That is not the question. As I under- 
stand it, Mr. Vreeland wishes to know how soon that fund 
could be made available; that 5 per cent fund — how soon 
the government guaranty under the notes would be avail- 
able to the note holders. 

Q. How soon are these notes of a failed bank redeemed ? 

Mr. Coulson. Just as soon as the liquidation provides 
a fund for it. 

Mr. McLeod. The notes have, in practice, been redeemed 
as fast as they have been presented. 

Q. That is, you mean that, in practice, the other banks 
have taken over the failed bank? 

A. No; where there is a liquidator. Take the case of 
the Bank of Yarmouth; it was not taken over. 

Q. When a bank fails here, doesn't it close its doors? 

A. Yes; it closes its doors. 

Q. When would its notes be presented for payment? 

A. The notes go into the other banks and go through a 
liquidator and are so paid. 

Q. Who is the liquidator? 

A. Take the case of the Bank of Yarmouth; the banks 
did not interfere at all with that bank failure, and the 
notes were collected by the other banks and were paid by 
the liquidator. 

Mr. Knight. Yes. 

Mr. Bonynge. The court appointed the liquidator, I 
suppose? 



64 



Banking and Currency Systems 

Mr. Vreeland. No; the association has a curator. 

A. A curator or a liquidator. 

Mr. Bonynge. Who appoints the liquidator? 

Mr. Knight. The court. 

Q. The curator is one appointed by the association, and 
the court appoints a liqudator to close up the affairs of a 
bank? 

Mr. Knight. Yes. 

By Mr. Vreeland: 

Q. Is that always so? Haven't other banks ever taken 
hold of a bank and liquidated it themselves without letting 
it go to a liquidator? 

A. I mean where a bank absolutely fails and is not 
assisted by the other banks. I am speaking of an abso- 
lutely failed bank. 

Q. I understood it was not the exception, but the prac- 
tice, for the other banks or the association to take over a 
failed bank? 

Mr. Knight. No. 

A. No; that has not been the practice. 

Mr. Coulson. That has only happened in two cases. 

Q. The practice is to let them close? 

Mr. Coui,son. The practice is to let them close. 

Q. Is that a growing practice? 

Mr. Coulson. It is. 

Mr. HuBBELi*. It is a matter entirely of self-preserva- 
tion? 

Mr. Coulson. It might be that. 

Mr. VrEELAND. Ordinarily, then, first the associated 
banks appoint a curator? 

22561 — 10 5 65 



National Monetary Commission 

Mr. Coulson. Yes. 

Q. What are his duties? 

Mr. Coulson. He takes possession and takes charge, 
collects in anything outstanding. 

Mr. McLbod. He takes the management of the operation 
and directs everything else in fact. 

Q. How long does he stay? 

Mr. Coulson. Until the liquidation is completed. When 
the liquidator is appointed, he stays until he winds it up. 

Q. When is a liquidator appointed? 

Mr. Coulson. Just as soon as an application is made. 

Q. I mean just when — to distinguish what the curator 
does and when his duties end, and when somebody else may 
be appointed. What has the curator done in the meantime ? 

Mr. CouivSON. I think in the Bank of Yarmouth the 
curator was continued almost to the end. 
By Mr. Bonynge : 

Q. His duties ceased as curator and he became the 
liquidator? 

Mr. Knight. No; he was appointed liquidator formally. 

Mr. McLeod. The bank was being wound up before 
there was a liquidator appointed. 
By Mr. Vreeland: 

Q. I understand the practice is that the executive coun- 
cil, in case of a failed bank, appoints a curator? 

Mr. Knight. Yes. 

Q. Who immediately takes charge of the bank and pro- 
ceeds to liquidate it? 

Mr. Knight. Yes. 

Q. Collects in its drafts and pays off its indebtedness? 

66 



Banking and Currency Systems 

Mr. Knight. Yes. 

Q. Then upon whose application does the court appoint 
a liquidator who is usually the curator? 

Mr. McXeod. He may be appointed on the application of 
a stockholder, or a creditor, or of the association, I believe. 

Mr. Knight. Yes ; let me give you an illustration. The 
last bank that failed before the Yarmouth was the Ville 
Marie. Three liquidators were appointed in the ordinary 
way; they were appointed by the court. Not one of the 
three was a practical banker ; not one of the three had an 
eye to economy, expense, or the exigencies of the situa- 
tion ; and these three parties sat together for nearly eight 
years and practically lived off the bank, without any pur- 
pose of winding it up. The first bank that failed after 
the Ville Marie was the bank mentioned by Mr. McLeod, 
the Bank of Yarmouth. The liquidator wound the bank 
up inside of nine months. 

Q. Either upon the application of the association, or 
upon the application of some stockholder, or of someone — 
I suppose any creditor — a liquidator is appointed by the 
court who is usually the curator who has been in charge? 

A. Yes. 

Q. And he proceeds to finish the liquidation of the bank? 

A. Yes; by taking the necessary legal proceedings that 
could only be taken by a liquidator. 

Mr. Bonynge. What does the government do with the 
5 per cent guaranty fund that you deposit? 

A. It becomes 

Mr. Coulson. They spend it. 

Q. What do they do with it after they collect it? 



67 



National Monetary Commission 

Mr. Coulson. Treat it the same as if it was savings 
banks deposits. 

Mr. Knight. They pay the bank's interest. 

Q. They pay bank's interest on it? 

Mr. Knight. Yes. 

Q. It is a loan to the Government? 

Mr. Coulson. It is a loan to the Government upon 
which they pay interest. 

Mr. Weeks. Suppose some of the notes of the Sovereign 
Bank came into your possession, would you get 5 per 
cent on them until they were liquidated? 

Mr. McXeod. After a certain date. 

Mr. CouivSON. Until the liquidator gives notice. 

Q. Then interest stops ? 

Mr. Coulson. Then interest stops. 

Q. What would prevent your holding those notes and 
drawing interest for a long time? 

Mr. Coulson. The notice. After that they cease to 
bear interest. 

Q. Do you think that the inspection methods which 
you have for determining how much circulation a bank 
has out are sufficient to prevent fraud provided the 
officers of a bank want to perpetrate a fraud? 

Mr. McXeod. I think they are. We have a statement 
from the engravers supplied to the association. 

Q. What engravers? 

A. Generally the American Bank Note Company. A 
record is made of that by the secretary of the association. 
The notes are passed on to the bank. They are issued. 
They are destroyed by the directors. Of course, if the 



68 



Banking and Currency Systems 

directors fail to destroy them, and instead of destroying 
them put them into circulation, that would be one way 
of defeating the check. 

Mr. Vreeland. There would be no way of detecting 
it except the statements of your directors? 

A. There would be one way of detecting it; that is, by 
keeping the record of each note that is outstanding and 
the date that it was destroyed, etc. 

Mr. Knight. The chief executive officer also signs the 
certificate. 

Mr. CouivSON. Yes; an officer signs the certificate, 
and there is a very carefully prepared certificate signed 
by the directors. Also the destruction of notes is as 
well safeguarded as can be. 

Q. It is entirely in the hands of the bank officers? 

Mr. McLeod. It is entirely in the hands of the bank 
officers and directors. 

Mr. Coulson. The association has supervision over 
that. 

Mr. McLEOD. Any such inspection could have no 
effect on the burning of the notes. We have to rely on 
somebody. 

Q. If the general manager of the bank and those 
three clerks, instead of burning the notes were to put 
them in their pockets for recirculation, what would hap- 
pen, how would you determine the fact, and what pun- 
ishment would be inflicted? 

A. There is one way of determining that, and that is 
by keeping a record of the circulation and the date of 
destruction of each note as they were called home, and I 



6 9 



National Monetary C ommis s to 



n 



think it should be kept. And there is another way of de- 
termining it — that is, by the amount of notes that are 
kept in circulation. A bank can't keep in circulation an 
inexhaustible supply of notes. 

Mr. Knight. There is one thing that must always be 
kept in mind, namely, that the last thing a man would 
resort to is an over issue of notes, he would have to come 
back to the clearing house and he would have to redeem 
them. 

Mr. McLeod. As a general rule the banker that goes 
wrong starts in hoping to recover, and his circulation 
accounts would be the last account he would tamper 
with, because he could not put it right. A good many 
years ago we had a cashier of our bank who practically 
looted the bank way back in the sixties, James Forman, 
but although he had the notes practically in his own hand 
so that he could order what notes he wanted — that 
was before there was any bank act worth speaking of, 
before confederation — and he had those notes so he could 
do what he liked with them, still the circulation accounts 
were correct. 

By Mr. Hubbeu,: 

Q. How can you keep the record of so many agencies 
so as to get an exact record of the amount of deposits out- 
standing and amount redeemed? 

A. We do that by daily returns. 

Q. Telegraphic returns? 

A. By mail generally. 

Q. Suppose a manager got a little bit close to it, wouldn't 
he be apt to make a haul? 



70 



Banking and Currency Systems 

A. If you will allow me I will answer that question as 
it applies to ourselves. We have every day a report from 
each branch, an estimate by each manager of the amount 
in the Bank of Nova Scotia, notes held back, a statement 
of the amount he has on hand at the close of business on 
the day on which the return is sent, an estimate of the 
amount that he will have on hand the following day and for 
the two following days. We do not allow a manager to 
go below his estimate. He must estimate what he needs, 
and upon those estimates we judge what our circulation 
will be. Formerly we used the telegraph, but we have 
adopted the other method. 

Mr. Coulson. Our system is perfect. If we wish to 
prevent an overissue our system is such we can check it 
every day. There is a penalty for overcirculating. 

Q. Isn't the amount of circulation outstanding, Mr. 
McLeod, pretty near the limit all the year round? Is 
there really elasticity in the fall? 

A. At the present time there is little elasticity. 

Q. How can you explain the fact that ten years ago you 
had deposits of 300,000,000 or 400,000,000 and now you 
have deposits of about 750,000,000 and yet the note in- 
crease has been about 75 per cent? 

A. The wealth of the country has increased to a greater 
extent than the active business of the country. Then 
I may say, also, that we have got to the maximum circu- 
lation at the present time in cash. We had to limit our 
circulation. 

Mr. Knight. We have got within 11,000,000 or 
12,000,000 of the limit now. 



71 



National Monetary Commission 

Q. I speak more of elasticity. 

Mr. Knight. I mean of the notes available for circula- 
tion. The variation of circulation is from 15,000,000 to 
20,000,000. 

Q. You need about 50,000,000 or 60,000,000 out West 
for the crops, don't you? 

Mr. Coulson. We paid out that amount of money and 
were there redeeming them all the time. 

Q. Then your 15,000,000 of circulation does not enter 
into that 50,000,000 except for the West? 

Mr. Coulson. In January last we had 30,000,000 that 
we could issue before we reached the limit. 

Mr. VrEELAND. You mean in all the banks? 

Mr. Coulson. I mean in all the banks. 

Q. Last January? 

Mr. Coulson. Last January. That 15,000,000 is what 
the average of the circulation increased, but a great deal 
more than that was paid out. Three or four times the 
amount of that was paid out. We are redeeming this 
every day. It is redeemed every day. It does not stay 
out. It just passes out and comes back. We are redeem- 
ing it at all the redemption centers. We have to keep 
redeeming it every day, and we are keeping it out every 
day. We always do that. When it gets up to the point, 
we have to cease, but we may put out a very large amount 
during that period; more than the 30,000,000. It keeps 
turning over all the time. We redeem, at a time like the 
present, $150,000 or $200,000 in Montreal and Toronto, 
but that is day in and day out. Of course, we are 
paying out as much each day, so it is only the excess 



72 



Banking and Currency Systems 

between what we are redeeming and what we are paying 
out that goes to increase the volume of circulation. 

Q. Your volume of circulation you consider the aver- 
age per month? 

Mr. CouivSON. Yes. 

Q. That is the average of each bank outstanding added 
together? 

Mr. Coulson. It gives the daily outstandings. It 
gives the average, and it gives the highest point during 
the month. That is the return to the Government. 

Mr. BonyngE. You mean the statement made by the 
bank to the Government? 

Mr. CouivSON. By the bank to the Government. 

(Recess until 2.30 p. m.) 

Q. Mr. McLeod, I see you have in your statement 
24,000,000 in deposits bearing interest and about 
6,000,000 in current accounts not bearing interest. 

A. Yes. 

Q. Is it your idea that this is about the proportion gen- 
erally that the banks would average ? 

A. Yes; I think about that proportion. 

Mr. Knight. Oh, no. 

Mr. McLEOD. You mean they would have a larger per- 
centage with interest? 

Mr. Knight. Yes. 

Q. It is almost exactly two to one? 

Mr. Knight. Yes. 

Mr. McLEOD. On referring to the statistics I find that 
only 22.7 per cent of the total deposits in Canadian banks 
are free from interest, so my estimate is practically correct. 



73 



National Monetary C ommis s to 



n 



Q. In this statement of July the Bank of Montreal had 
$44,000,000 payable on demand and $88,000,000 payable 
upon time. That was outside of government deposits? 

Mr. Knight. Yes. 

Q. Mr. Smith says the mortgage companies pay 2>% per 
cent interest; isn't there a possibility that they will ob- 
tain deposits at the expense of banks if they pay a higher 
rate of interest? 

Mr. Laird. Yes ; I think it is likely that paying that rate 
they take some of the money that would naturally come to 
us. I do not think it is very important. 

Mr. BonyngE. The Canadian Permanent Mortgage 
Company, that Mr. Smith represents, had a cash balance of 
something over a million, and most of it on deposit with 
banks. 

Mr. Morris. The Canadian Permanent Mortgage Com- 
pany, I think, is an exceptional concern. 

Q. It had practically 25 per cent cash reserve? 

Mr. Morris. Yes. 

Q. It is the largest company of that kind in Canada, 
is it not? 

Mr. Morris. Yes. 

By Mr. VrEEIvAnd: 

Q. I notice your current loans secured by bonds, de- 
bentures, and stocks, $1,000,000; that is all secured? 

A. Yes. 

Q. Loans secured by grain and other staple commodi- 
ties ; those would be warehouse receipts and that form ? 

A. Elevator receipts for grain, etc. 

Q. You mean stored grain? 



74 



Banking and Currency Systems 

A. Quite a good proportion of the business is in America. 

Q. Overdrafts; how many of these overdrafts have 
been authorized and bear interest in proportion to the 
amount used? 

A. Those are overdrafts — overdrawn accounts. 

Q. Without the consent of the bank? 

A. Sometimes without the consent. 

Q. It is the aggregate of overdrafts and checks which 
you considered good which you have paid? 

A. No; they are the amount outstanding at the time 
the balance sheet was made up. You state the amount. 

Q. One hundred and fifty-nine thousand dollars. 

A. Yes. 

Q. What I was getting at is, you know, that, especially 
in Scotland, they have a form of authorizing drafts with- 
out any money in the bank? 

A. Cash credit. 

Q. And interest is paid upon the amount actually 
used ? — I was getting at whether you follow any of that 
line of business. 

A. No; they have to borrow that money. 

Q. These are simply temporary advances, payments on 
checks ? 

A. Yes. 

Q. To be made up by deposits? 

A. Yes. 

Q. You have another form of overdraft authorized but 
not specially secured, $88,000? 

A. Yes. 

Q. What does that mean, "authorized?" 



75 



National Monetary Commission 

A. That is generally approved after the event. 

Q. After the event? 

A. Yes. 

Q. These overdrafts that were not secured, the other 
item, must have been approved before the event? 

A. Not necessarily. They might be approved by the 
manager, or granted by the manager and afterwards 
approved by us. 

Q. Notes and bills discounted and current; that is the 
item of loan? 

A. Yes. 

Q. Does that include a great amount of single-name 
paper? 

A. No ; a very moderate amount. 

Q. What class of single-name paper would that be 
mostly — actual paper purchased such as your banks would 
consider good in the cities? 

A. This item of single-name paper would be paper we 
would purchase through brokers. 

Q. Note brokers? 

A. Yes. 

Q. You have the note broker here? 

A. No ; we buy in Chicago and Boston. 

Q. And that would be such single-name paper as is being 
sold in the cities by large manufacturing concerns? 

A. Yes; in addition we make some single advances in 
this country, particularly to good clients. 

Q. What would be the form the greatest portion of that 
$13 ,000,000 of paper would be in ? Is it in the form of notes 
for two or three or four months? 



76 



Banking and Currency Systems 

A. Yes; portions of it would be bills receivable, trade 
bills. 

Q. It is business paper? 

A. Yes. 

Q. Do your loans on single paper, using that as a 
general term, covering all kinds of notes upon time draw- 
ing interest, correspond quite closely to our loans across 
the border? 

A. No ; your loans on the other side are more generally 
given on single-name paper. A large merchant will come 
to the bank and apply for a loan ; perhaps he would want a 
loan of $100,000; he simply gives his note for it. The bulk 
of our advances are against trade bills. 

Q. A merchant in St. Paul who is in first-class credit 
makes arrangement with his banker and discounts his 
bills and pays all of his accounts by check; what would 
a similar concern do here in the city of Toronto, a firm in 
first-class credit, what form would they have to be, manu- 
facturer and wholesaler? 

A. As your St. Paul merchant will make an arrangement 
with two or three different banks to grant him a loan of 
$50,000 or $100,000 or $150,000 each, then the chances are 
he will sell his paper through a note broker; you have 
these loans agreed to be made by his bank in reserve to be 
used when panic or trouble comes. That is very often the 
case. The Canadian merchant relies upon one bank to 
take care of him. Sometimes an account is divided. I 
think, perhaps, I may state with propriety that we have 
catered more to trade bills than most banks do. That is, 
as against single-name advances. 



77 



National Monetary Commission 

Q. What do you call a trade bill? 

A. A bill given to a merchant for an invoice of goods, or 
a draft drawn by a merchant on a customer some distance 
away. 

Q. You call both of them trade bills? 

A. Yes. 

Q. Then your merchant here — you say you take care 
of him — would make arrangements with your bank for 
the money with which he would discount his bills and 
pay them by check? 

A. Yes. 

Q. Would a firm here in first-class credit, a mercan- 
tile firm, give its notes to a manufacturer or whole- 
saler upon time for goods? 

A. They sometimes do. 

Q. Would they accept drafts upon time for goods with 
interest? 

A. No. 

Q. Your practice is that they discount their bills and 
pay by check? 

A. Yes. 

Q. Making their arrangements for their money with 
their bankers ? 

A. Yes; of course, where you go to the middleman, 
or the wholesaler who supplies small purchasers through- 
out the country, he draws on these small purchasers 
and they accept the draft. As a rule, they do not pay 
cash for their purchases. 
By Mr. HubbELL: 

Q. Do you use a signed statement at all for your 
single-name paper? 

78 



Banking and Currency Systems 

A. Yes. 

Q. You do not use any audited inspection of a mer- 
chant ? 

A. No. 

Q, Just your own judgment? 

A. Yes; just a signed statement, and sometimes the 
statement is attested by an auditor, but an auditor 
selected by the merchant, not by us. 
By Mr. Vreeland: 

Q. Do your banks buy foreign bills to any extent? 

A. Bills drawn on Europe and Great Britain? 

Q. Yes. 

A. Yes. 

Q. You make no distinction, I take it, between what 
we call financial bills and commercial or trade bills, 
notes ? 

A. We prefer the commercial or trade bill as against 
financial bills. 

Q. Do the banks here borrow to any extent from their 
correspondents in London? 

A. I think not. I think that the strongest banks 
very seldom borrow from the London bankers. 
By Mr. BonyngE: 

Q. Have any of the Canadian banks branches in 
Europe? 

A. I think there is one in Paris — one of the French 
Canadian banks has a branch in Paris — and there are 
several branches in London. 

Q. Are there any in South America? 

A. No; not any in South America. 



79 



National Monetary Commission 



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80 



Banking and Currency Systems 

Interview with George P. Scholfield, general manager of the Standard 
Bank of Canada. 

By Mr. Vreeland: 

Q. Mr. Scholfield, your head office is in Toronto? 

A. In Toronto. 

Q. How many branches do you have? 

A. Seventy -seven. 

Q. What would you say, Mr. Scholfield, about the aver- 
age amount of cash reserves carried by the commercial 
banks ? 

A. As regards the proportion that should be carried? 

Q. No; but the amount which is actually carried in cash 
as reserves? 

A. You are speaking now of legal and specie holdings? 

Q. I mean cash. 

A. I think it will average between 10 and n per cent. 

Q. Is that about what the Standard runs ? 

A. Yes; it varies from about 8 to 15 per cent. I think 
in our last annual statement the amount of cash held was 
over 16 per cent, but our financial year closes at the end 
of January, when our current loans are rather less than 
usual, so that naturally it has the effect of increasing our 
cash reserves proportionately somewhat. 

Q. Do you have any call loans with stock collateral in 
your bank? 

A. Yes, but not outside of Canada. 

Q. Some of the banks do, I suppose, have call loans in 
New York? 

A. The Montreal, Commerce, British, Merchants, Royal, 
and Nova Scotia are the chief Canadian banks, I think, 

22561 — 10 6 81 



National Monetary Commission 

lending outside of Canada. In years past we have loaned 
through our foreign agents, but not recently. 

Mr. Weeks. Do they charge a commission for doing it? 

A. Yes ; if they guarantee the loan. 
By Mr. Vreeland : 

Q. January 30, 1909; this would be your last general 
statement that is made according to law and published? 

A. Yes; but the information supplied would not be 
applicable to our to-day's affairs in that we have since 
absorbed the Western Bank, and with the acquiring of it, 
together with the natural increase in our business, our 
assets are nearly double what they were when the state- 
ment you have in your hands was published. 

Q. Absorbed the Western? 

A. Absorbed the Western. 

Q. Is the Western on this list of ours ? 

A. It is among the chartered banks. 

Q. Was it the 1st of January that you absorbed that? 

A. The assent of the treasury board, which is the final 
act in absorption, was obtained in February last. 

Q. I do not find any Western Bank in the list. 

A. The 15th of February was the date of consumma- 
tion. They would not have to send a government return 
on that date. 

Q. There are 31 chartered banks given us. 

A. January, 1909, you are looking at there? 

Q. Yes. 

A. The end of January ? 

Mr. Hubbeu,. This is in July. 



82 



Banking and Currency Systems 

A. The Western Bank statement would not appear in 
the July return. 

By Mr. Vreeland: 

Q. That is July, 1909. There were 32 last year? 

A. Yes. 

Q. Thirty-one are given here, not including yours, and 
the Sovereign is included, and that leaves 30 now. 

A. The Northern and Crown have recently been amal- 
gamated, and perhaps they appear in the statement you 
have in front of you as two rather than one. Both the 
Northern and Crown are comparatively new institutions. 
By Mr. Weeks: 

Q. What do you think about the amount of reserve? 
Is the reserve carried by the banks sufficient to provide 
for the conditions which you have to meet? 

A. Yes; I think, generally speaking and having a 
regard to the Canadian situation, that the cash reserves 
carried, while not generous, are sufficient for our purposes, 
provided always, of course, that, in addition to the cash, 
the quantity of government bonds or securities which 
have an immediate market value and ready sale outside 
of our own country are relatively substantial in amount. 

Q. It seems that the number of banks in Canada is 
constantly decreasing? 

A. The present disposition, and I think a wise one, is 
to decrease rather than increase the number of banks. 
I do not think the needs of our country at the present 
time would be better served by increasing the number, 
but on the contrary I should be of opinion that if we 



83 



National Monetary Commission 

had fewer, but not materially fewer, and very strong 
institutions, it would be moving in the right direction. 
This is my opinion, of course, and there are many in the 
country, and thoughtful men, too, who do not agree or 
share in it. I should think it would be better if, in grant- 
ing new charters, the government insisted that at least 
$500,000 capital must be actually paid up before a bank 
should be allowed to open its doors for business and issue 
its circulation. 

Mr. Vreeland. To get a new charter? 

A. New banks may be safely conducted, and, we will 
assume, very conservatively; but it is rather a difficult 
matter to give to their shareholders for some years a 
better return than say 4 per cent, and, having regard to 
the double liability always existent, that can not be con- 
sidered an attractive investment. 

Mr. Bonynge. Is it necessary to go to parliament for 
such new charter? 

A. It is necessary to go to the government for a 
charter. The charters of existing banks are renewed 
every ten years, and in the event of a bank being ab- 
sorbed its charter remains in force for winding-up pur- 
poses, but after the approval of the treasury board has 
been given it is forbidden to reissue its notes for circula- 
tion, or carry on any business whatever, except to realize 
upon the assets not included in the agreement of sale, 
and discharge its liabilities. The Western Bank charter, 
assuming that the transfer would have been assented 
to by the treasury board, has a very substantial value, 
but by reason perhaps of sentiment on the part of some 



84 



Banking and Currency Systems 

of the former directors of the Western Bank, who are 
also members of the Standard Bank board, we should be 
unwilling, except under very special circumstances, to 
make a disposition of it. 
By Mr. Vreeland : 

Q. Was their charter any better than that of your 
own bank? 

A. No. 

Q. The Standard? 

A. No ; it was not better. The officers of the Western 
Bank, I understand, were of the opinion that by reason 
of the name ''Western," and our northwest now becom- 
ing such a factor in our national life, it should have 
more than the usual value attaching to a name, but I am 
not prepared to admit or deny the soundness of that 
contention. When a bank's liabilities have been dis- 
charged a surrender of the charter will be permitted. 

Mr. Weeks. Would it die if the bank failed? 

A. Yes ; the failure would operate as a forfeiture of the 
charter, except so far as the latter would remain in force 
for the winding up of the business, and if necessary the 
enforcement of the double liability. 
By Mr. VrEELANd: 

Q. What is there about the charters expiring in 191 1? 

A. A decennial revision is made and the charters are 
continued in force during that period as regards name, 
capital stock, shares, value, and head office; but, of course, 
a bank meantime might be permitted by application to 
increase or reduce its capital stock; and also assuming 
that meantime it did not become insolvent or fail to per- 
form the conditions required under the act. 

85 



National Monetary Commission 

Q. As a matter of law your charters do expire in 191 1 ? 

A. As I have explained previously. 

Q. It would be at the option of the Dominion govern- 
ment parliament to renew them? 

A. Quite so. 

Q. How long would they renew them? 

A. Ten years. They are decennials. 

Q. They are renewed every ten years? 

A. Yes. 

Q. The government has shown a disposition to accede 
quite generally, haven't they, to the wishes of the banks? 

A. Yes; quite so. The attitude of the government 
would appear to give the banks quite as much responsi- 
bility as they are willing to accept. 
By Mr. WEEKS : 

Q. You think it is a good thing for the business of the 
country that the banking is being concentrated in so few 
hands? 

A. Yes. 

Q. That the number of banks are being decreased in- 
stead of increased? 

A. Yes; within reason. 

Q. What would you call reason? 

A. Having regard to our small population of 6,000,000 
of people, I think the present number sufficient for our 
purposes. I do not think we would suffer if we had 20 
banks rather than 30; in fact, I should be inclined to 
think we would be better off, but doubtless if we had too 
few banks the public might think, and we have frequently 
heard suggestions of it, that by reason of the control being 
in so few hands it might be termed a monopoly. 

86 



Banking and Currency Systems 

By Mr. Bonynge: 

Q. Have you an executive committee of the Canadian 
Bankers' Association? 

A. Yes. 

Q. How is that executive committee appointed? 

A. The executive committee is elected by the members 
of the association at their annual meeting. 

Q. How many banks are represented on the executive 
committee ? 

A. I think 18 or 19. 

By Mr. Vreeland: 

Q. I understand any bank has the right to join the 
association? 

A. All the banks named in the schedule at the time of 
incorporation became members of the association, and 
subsequently any other banks, after having obtained the 
right to do business, upon application have been admitted. 
I do not think there is a Canadian bank carrying on busi- 
ness at the present time that is not a member of the asso- 
ciation. 

Q. It says in the law "Any bank to which the bank act 
applies, carrying on business in Canada and not named in 
the schedule to this act, shall, on its own application, at 
any time be admitted as a member of the association by 
resolution of the executive council hereinafter named." 

A. A bank is admitted by resolution of the executive 
council. 4 

Q. To what extent is the number of associated banks 
increasing? There were 34 at the time this act was passed 
in 1900. 



87 



National Monetary Commission 

A. The number has decreased somewhat in the last few 
years by reason of failures and absorptions. 

Q. I was about to ask you to what extent the associa- 
tion is able to fix along mutual lines, for instance, rates of 
interest and rates of discount and rates of exchange, and 
other matters that would be of general interest? 

A. The association has no powers in this respect other 
than moral suasion, and would be unable to penalize a bank 
which was unwilling to accept the views of the majority. 

Q. Do not the associated banks of the association have 
any understanding about what rates of interest shall be 
paid? 

A. The fixed rate for deposits is 3 per cent, except in 
specially provided cases, such as to employees of the bank, 
municipal corporations, and pension funds. In respect to 
these there is no maximum or minimum. Two or three of 
the newer banks have maintained that they should be 
privileged to offer a higher rate than 3 per cent, and this 
is not objected to by the larger and older banks. I do not 
think the banks, other than some of the newer ones, would 
be desirous of paying a higher rate than 3 per cent, and 
although some banks have been charged with it, I am not 
inclined to believe that any bank has broken the 3 per 
cent rule. 

Q. Does the association make any attempt to enforce 
discipline in such cases? 

A. If a bank offends, the association is powerless beyond 
that the general managers could instruct their representa- 
tives in the various clearing houses to move in the direction 
of having the offending bank dismissed from the privileges 
of those clearing houses. 



Banking and Currency Systems 

Q. You do not, as a matter of fact, attempt to inflict 
punishment ? 

A. No. 

Q. Except by talking with them about it? 

A. Yes. 

Q. Does the same understanding exist with regard to 
loans ? 

A. No; that in my opinion, would be absolutely impos- 
sible, as loans, even for similar amounts, are so entirely 
different in character. 

Q. Are rates of discount cut somewhat by competition 
between banks for the purpose of getting business ? 

A. They were very frequently prior to 1907. Since that 
time banks do not seem anxious to cut the rate, nor are 
the public so willing to make a change, seemingly rather 
preferring, if necessary, to pay a slightly higher rate than 
trust themselves in the hands of new friends. 
By Mr. Weeks : 

Q. Do you think savings accounts should be segregated 
and invested under special regulations, or used as they 
are now? 

A. I do not think savings accounts should be segregated 
and invested under special regulations. Experience has 
taught us that, no matter how badly banks are man- 
aged, or even, I might add, dishonestly, depositors, except 
in the case of very small institutions, do not run much, if 
any, risk of loss under the conditions of our present bank 
act. 

Q. You think the government policy regarding postal 
savings banks is a wise one? 



89 



National Monetary Commission 

A. It is useful in serving the purposes of particularly 
timid people, but apart from this I do not think any par- 
ticular benefit accrues from it. 

Q. I refer particularly to collecting this money and 
using it as receipts ? 

A. Using it as what? 

Q. As receipts, as ordinary revenue, without any re- 
serve against it? 

A. Of the specie held by the government a sum equal 
to 10 per cent of the amount of the savings-bank deposits 
is held as a special reserve as against those deposits. The 
balance of the specie would be available for taking care 
of the government's note circulation. 
By Mr. BonyngE : 

Q. What have you as reserve against the postal savings ? 

A. A little less than 6,000,000. 

Q. You know the amount of the postal deposits? 

A. About 59,000,000. 

Q. Do you think the postal savings banks in Canada 
are of material benefit to the people ? 

A. I think they serve the purpose at the present time 
in providing an assuring depository for nervous people 
who feel that the government's guaranty is the only 
proper protection for their savings. As a matter of fact, 
I think the people would be practically quite as well 
served, and certainly much more conveniently, by the 
banks. The government in return, in a new and growing 
country like Canada, could well afford to obtain its money 
abroad even at a slightly higher cost and leave the peoples' 
money available for the banks to be used in the channel's 
of trade. 

90 



Banking- and Currency Systems 

By Mr. Vreeland: 

Q. Are you familiar with the details of depositing in 
the postal savings bank? 

A. Fairly so, I think. You mean the time necessary 
for withdrawal and the maximum amount of the deposit? 

Q. Yes; the limitation upon deposits. 

A. You mean up to 3,000? 

Q. Yes. 

A. Yes. 

Q. Is it up to 3,000 they are permitted to deposit? 

A. Yes; 1,000 in any one year and 3,000 is the maxi- 
mum. Of course, trust accounts are sometimes created 
by which the maximum difficulty is eliminated by the 
depositor. 

Q. Then how much detail is there to withdrawing 
funds? For example, in an ordinary time, .the method 
of it? 

A. The book has to be sent to Ottawa, together with 
the receipt, and if in order a check is returned to the post- 
office to which the depositor has applied. 

Q. Would it have to be sent from Toronto? 

A. Yes. 

Q. In all cases down to Ottawa? 

A. It is a federal savings bank, not a provincial. 

Q. The holder of the book would have to present it at 
the post-office in Toronto with his application, and then 
it would have to go to Ottawa? 

A. Yes; I think there would be no other way, and a 
savings-bank check would be sent back to the post-office 
for delivery to the depositor. 



91 



National Monetary Commission 

Q. Drawn upon what? 

A. Drawn upon the Bank of Montreal, Ottawa. 

Q. Payable at any of its branches? 

A. Yes; or at the offices or branches of all other banks. 
By Mr. Bonynge: 

Q. Have to send the book from the western country 
to Ottawa, too? 

A. I believe so. 

By Mr. Weeks: 

Q. The government issues these checks and books? 

A. The Dominion government. 

Q. Is the bank capital increasing rapidly under the 
mode of requirement? 

A. You mean so far as circulation is concerned? 

Q. Yes; so far as circulation is concerned. 

A. The government and banks were a little fearful that 
during the grain-moving periods the sum might not be ade- 
quate, and to meet this the issue of temporary circula- 
tion, known as "emergency circulation, " has been author- 
ized. 

Q. It looks as if in three or four or five years you might 
get to a point where you might need more capital or further 
means of getting circulation. 

A. Yes ; quite possibly, but when the situation arises it 
will be met either, I think, by additional circulation being 
permitted as against capital, capital and reserve, or gold 
deposits. 

By Mr. Bonynge : 

Q. What amount of notes does your bank ordinarily 
have outstanding? 



92 



Banking and Currency Systems 

A. About 80 per cent. 

Q. Eighty per cent of the authorized amount ? 

A. Of the paid-up capital. 

Q. Of the paid-up capital? 

A. Yes. 

Mr. VREEivAND. The capital since 1900, Mr. Weeks, has 
increased from $67,000,000 to $96,000,000 in round num- 
bers; the surplus has increased from $34,000,000 to 
$74,000,000. 

A. The increased emergency circulation now permitted 
is the amount of paid-up capital plus 1 5 per cent in excess 
of that amount together with 1 5 per cent of the amount of 
the reserve. 

Mr. BonyngE. When you can not loan any more money 
here in Toronto you stop discounting at all of your branches 
at the same time, I take it? 

A. No; not necessarily. In times of stringency banks 
are inclined to insist upon the curtailment of loans more 
in the centers, perhaps, than in the rural districts, but, of 
course, at all times having regard to the character of the 
account concerned. 

Q. And would not necessarily take the same course in 
regard to loans in the Saskatchewan district that you 
would in Toronto or Montreal? ' 

A. No ; you would have regard to the individual and his 
occupation. As, for instance, the idea of declining to loan 
a farmer money to buy cattle for grazing when he already 
had the pasture would be, I think, approaching waste, but, 
on the other hand, a banker would not hesitate when 
money was tight to insist that his large business customers 
must not ask to extend. their operations. 

93 



National Monetary C ommis s to 



n 



Q. The reason I asked that question is to try to come to 
a conclusion whether your branch in the country will an- 
swer the purpose for the people as well as an independent 
bank? 

A. I think it answers better, because, as I have stated, if 
any favoritism is to be shown by the bank to its customers, 
those in the country will doubtless be more generously dealt 
with than the business community in the larger centers. 
By Mr. Vreeland. 

Q. I notice in the statement made before your consol- 
idation that you had at the time about $16,000,000 of 
deposits, and $14,000,000 of it was upon interest; the 
other was current deposits not bearing interest? 

A. Yes. 

Q. Do you think in the banks generally as large a pro- 
portion of deposits are interest-bearing deposits? 

A. The proportion of interest-bearing deposits to the 
whole in the bank of which I am general manager is some- 
what above the average, but I do not regard this alto- 
gether as an unfavorable feature, in that our branches are 
largely in the smaller places. Consequently we have 
fewer numbers relatively, I think, of temporary large free 
balances, but, on the other hand, the small deposit, 
upon which you do allow interest, is of a much more stable 
character and can be depended upon to remain, and per- 
haps grow, so that the amount of cash reserve that has to 
be carried as against this class of deposit is not so great. 
By Mr. Weeks: 

Q. You mean you pay a higher rate? 

A. No; 3 per cent is the maximum rate we pay. 
Banks have different ways of making up their govern- 

94 



Banking and Currency Systems 

ment return and sometimes use their current ledger 
balances containing loan company and other large ac- 
counts for the purposes of making up noninter est -bearing 
deposits, but we are absolutely careful in this respect 
and select every account in our current ledger that 
returns anything whatever in the shape of interest, and 
include the balance in the interest-bearing deposits, 
By Mr. VrEELANd: 

Q. Notes of and checks on other banks, $681,190.59; 
you call that a cash item? 

A. They are cleared on the day following the return, 
and actual cash is received for them, but, on the other 
hand, checks and notes drawn on the bank itself appear 
as a balance against them in the same clearing to which 
I refer, but one is not an offset as against the other in 
that under our clearing-house rules until such time as 
checks and notes have been actually accounted and paid 
for they are ear marked on behalf of the depositing bank, 
so that in the event of a bank which was a member of 
the clearing house failing, the securities of all other banks 
lodged that day and drawn on it would be returned to 
the depositing bank. 

Q. Cash assets: due from other banks, $285,000 in 
Canada, $284,000 in United States, $33,000 in Great 
Britain; you call that a cash asset? 

A. Subject to check without notice. 

Q. Loans on call on government, municipal, and other 
bonds and stocks, $1,250,000? 

A. Those are call loans. 

Q. Where are they located? 



95 



National Monetary Commission 

A. In Toronto. 

Q. Do you have a strictly call market here? 

A. It can hardly be so designated. However, it is 
some years, with the exception of 1907, since call loans 
by solvent houses have not always been promptly met 
when asked for, and even during the stress of 1907 our 
best brokers asked no favors. 
By Mr. Bonynge : 

Q. Did you include these items Mr. Vreeland has re- 
ferred to in making up your 13 or 14 per cent reserve? 

A. No. 

Q. Those are in addition? 

A. Yes; our immediately available assets usually 
amount to 35 or 40 per cent. When I referred to cash 
reserve I had in mind only government legals and specie. 
This is the Canadian acceptation of the term "cash." 
By Mr. Vreeland: 

Q. You have $2,835,000 as your issue of coins and 
Dominion notes? 

A. Yes. 

Q. As against deposits of $16,000,000 and note issue 
of $1,100,000? 

A. Our reserves are usually rather larger at the end 
of January, since at that time of the year the grain has 
been realized upon, loans are paid off, and deposits some- 
what increased. 

Q. In the States quite a considerable portion of your 
items would be counted in the reserve — that is, due from 
other banks ? 



96 



Banking and Currency Systems 

A. Yes; we have what we call quick assets, and the 
figures above the line of the statement that you are holding 
in your hand constitute such in our minds. Those assets 
are all supposed to be realizable upon immediately ; on the 
other hand, even the deposit with the government for the 
redemption of the bank notes, although absolutely good, 
of course, could not be termed a quick asset, and conse- 
quently it appears below the line. 

Q. You know where it is, so that you could go and get it? 

A. That is it. 

Q. You have an entry, "First-class bonds, $2 ,030,000;" 
those you own? 

A. Those we own. 

Q. Would that $2 ,000,000 include some first-class railroad 
bonds? 

A. Yes; but chiefly municipal. 

Q. Is it the policy of your banks generally to hold 
considerable portion of government or other first-class 
securities as secondary reserves? 

A. Yes; should a bank require it, it would be likely to 
have arrangements abroad whereby that it could borrow 
money upon these securities at any time, and even 
though the markets of the world were not in a particu- 
larly comfortable position. An arrangement such as this, 
and which has been definitely arrived at, is practically as 
available in time of need as foreign balances. 
By Mr. Weeks: 

Q. Do you own your own banking house? 

A. Yes. 

Q. Do you own your own branch houses ? 

22561 — 10 7 97 



National Monetary Commission 

A. We own quite a number. 

Q. You own them? 

A. We paid for them. We do rent at some places. 
By Mr. VrEELANd: 

Q. What forms of commercial paper do you have? 

A. General. 

Q. You have, for instance, the indorsed notes such as 
we have across the border? 

A. Yes; different classes. We have single-name paper 
to some extent in the farming communities; we have the 
indorsed accommodation paper; we have strictly com- 
mercial paper and what we term collateral paper under 
hypothecation. 

Q. Your paper would correspond quite closely to our 
lines across the border? 

A. I think so, except that your banks, I understand, 
specialize to some extent. By that I mean one institution, 
doubtless through the personnel of its directorate, has a 
leaning toward lumber accounts; and other leather 
accounts, merchants' accounts, etc.; at least that is as I 
understand your practice. We have no particular prefer- 
ence for any class of business other than what may obtain 
in the particular locality in which our branches are 
located. 

Q. Do you have much paper following the lines of com- 
mercial paper in Great Britain and in France and Ger- 
many — that is, paper based upon the actual business 
transaction in the form of bills ? For example, a manufac- 
turer in Canada sells a bill of goods to a merchant, what 
would be the ordinary method by which your merchant 



9 s 



Banking and Currency Systems 

would pay his bills? Would he make arrangement with 
his banker and send a check, or would he accept a draft 
perhaps on time from the manufacturer? 

A. Transactions vary in this respect. Some manufac- 
turers prefer to draw upon their customers, particularly 
if the people to whom they sell are jobbers, while, on the 
other hand, some purchasers, if they are quite good, have 
a prejudice against accepting drafts and pay by check. 
In the majority of instances in Canada as yet our retail 
merchants are unable to pay cash, so that it is the prac- 
tice rather than otherwise for the wholesaler or manu- 
facturer to draw upon his customers. 
By Mr. VrEELANd: 

Q. Suppose there is a general store in first-class credit 
would they be expected, and would it injure their credit, 
if they accepted time drafts from manufacturers of whom 
they buy goods or wholesalers? 

A. No; it would not necessarily have any bearing upon 
his actual credit, unless the drafts' were drawn for a time 
that would show that the buyer was unable to discount 
his purchases, which would of course show a weakness. 

Q. Would the practice be for your merchant to accept 
drafts from the wholesaler and manufacturer upon time, 
or does he make arrangements with his banker so as to dis- 
count his bills and pay cash? 

A. If he is in a strong position he would make arrange- 
ments with his banker for assistance to enable him to dis- 
count his purchases, but to do this he would require in all 
probability to be in a position to discount all his purchases 
and with only a comparatively small amount of assistance 
on the part of the bank. 

99 



National Monetary Commission 

Q. I am talking about a firm of first-class credit. 

A. Yes; he would send his check. 

Q. He would not be expected to accept drafts upon 
time? 

A. No; because he would lose his discount. 

Q. I am trying to get at whether you follow the lines 
of commercial paper we have in the States, or whether you 
follow the lines of commercial paper abroad? 

A. An accommodation to a merchant by a bank to as- 
sist him in discounting his purchases would be styled by 
us accommodation paper, not commercial paper. 

Q. Growing out of an actual commercial transaction? 

A. Yes; even if growing out of an actual commercial 
transaction it would still be accommodation so far as the 
banker and purchasing customer are concerned. 

Q. Bills discounted and advances current $13,000,000; 
that is the same item of loans here? 

A. Yes. 

Q. Those would be mostly made up of notes given for 
time, probably not to exceed four months? What is the 
usual time? 

A. Four months would be about a maximum for ordi- 
nary commercial paper, although sometimes six months' 
terms are given. In a manufacturer's account the col- 
lateral he lodges and made by farmers is frequently drawn 
for one and two years. 

Q. Do you follow the system of permitting overdrafts 
and charging interest upon the cash actually used? 

A. As far as possible we avoid making loans by way of 
overdraft. We think, and so advise our branches, that it 



Banking and Currency Systems 

is wholesome that if a man requires accommodation he 
should come to the bank and make arrangements for it, 
telling what he needs it for and fixing a specific date for 
repayment, and we think also that when a customer is 
compelled to explain to his banker why he needs the 
money the transaction, from his standpoint at least, 
usually has merit. We discourage the idea of overdrafts 
as far as it is practicable. 

Q. You do not follow that system? 

A. No. 

Q. Of advancing and charging actual interest upon the 
amount used? 

A. Occasionally, but not usually. 

Q. What extent do you take single-name paper without 
security ? 

A. We are inclined to think our single-name paper is, 
as a rule, the strongest paper we hold, as it is loaned to 
farmers and through the small country branches, and the 
losses in the rural offices are in reality very small. Manu- 
facturers, of course, are expected to supply collateral paper, 
and frequently pledge their goods under a section in the 
act known as No. 88. 

Q. You have some excellent provisions in your law 
from the banker's standpoint here? 

A. You are quite right. The act gives the bank a 
decided preference over other creditors if it avails itself 
of the protection possible, but in the long run I find diffi- 
culty in persuading myself that in many instances the 
privilege is not abused, and it would be better, even for 
itself, if the bank had not possessed it. The customer, 



National Monetary C ommiss to 



n 



it is generally understood, is quite at liberty to use the 
goods thus pledged without reference to the bank, and it 
is almost unknown where criminal proceedings are insti- 
tuted in this connection; but, on the other hand, where 
goods are warehoused and a shortage obtains prosecu- 
tions are relatively not infrequent. 

Q. Of that twelve millions what proportion would you 
say was secured in any way? 

A. Oh, possibly 90 per cent; but, as I told you before, 
I would regard perhaps the remaining 10 per cent as the 
safer. 

Q. Is it the practice for banks to loan upon one name 
that is considered good? 

A. It was not a few years ago, but banks have no longer 
any particular feeling in that respect, save that, of course, 
we always like two names rather than one if we can get 
them. 

Q. To what extent do you require indorsements on 
notes ? 

A. There is no particular percentage; each transaction 
is dealt with on its merits, whether it be single or double 
name paper. 

Q. Do you use it to a large extent ? 

A. Single name? 

Q. Indorsed notes requiring the men to have somebody 
else indorse their notes. 

A. Yes ; in cities particularly the great bulk of the paper 
is either indorsed or otherwise secured. 

Q. You have indorsed notes in general use, do you? 

A. Yes. 

Q. Especially in the cities? 



Banking and Currency Systems 

A. Especially in the cities. 

Q. Your lines of paper follow quite closely ours across 
the line? 

A. Yes ; I think so. 

Q. You have the single-name paper that we use, a note 
given by a man for three or four or six months, whatever 
it may be? 

A. Yes. 

Q. Then you have the line of paper with two or three 
names on, perhaps with two indorsers besides the maker? 

A. Not the paper such as is sold upon the bond market 
in your country; that is unknown in Canada, although 
some of your paper of this class is purchased when funds 
are plentiful by Canadian banks. 

Q. Then you have the note with collateral security? 

A. We do not lay the same stress I think upon names 
in Canada that you do under your system. We are 
rather more concerned about the nature of the transac- 
tion which is involved. Our wealthy people are limited 
in number, and their names are not frequently found on 
paper offered for discount, so that a Canadian banker 
has usually first to conclude that the nature of the pro- 
posed transaction with which the paper is associated is 
sound. 

Q. Supposing some one in town doing business wants 
to enlarge his business and purchase an extra amount 
of goods. 

A. Yes. 

Q. He hasn't collateral to put up; he hasn't stocks or 
bonds. 

A. Yes. 

103 



National Monetary Commission 

Q. Could you under your bank laws take security on 
his stock of goods? 

A. If he were a manufacturer, wholesale shipper or 
dealer, you could; but you could not take security from 
an ordinary retail merchant except for past indebtedness, 
and then it would have to be done under the Ontario 
Mercantile act, or what we term a chattel mortgage, of 
which the world would have notice, and his credit would 
be practically ruined. 

Q. You say to him: " We do not feel quite at liberty to 
advance this money on your own account; can you get 
someone that is responsible to indorse your note?" 

A. No; we should not say that. 

Q. How would he get his money? 

A. He would not get his money from the bank, unless 
it was a temporary expedient and for a specific purpose, 
and the bank knew quite well that its advance would be 
repaid at a very early date, as otherwise, even though he 
supplied an indorser, we should be putting capital into his 
business rather than lending him money — something that 
Canadian bankers, I think, should decline to do. 

Q. Assuming he merely wishes to discount a check and 
save the discount, and you think his credit is such you 
would want to loan it on his single name? 

A. And he will be- able to repay it at maturity? 

Q. Yes. 

A. The indorser will satisfy you then. 

Q. You would say to him then: "Get some respectable 
indorser to back you up?" 

A. Yes. 



104 



Banking and Currency Systems 

Q. You do that sort of business? 

A. It is not frequent, though. 

Q. It must be that a tradesman, as a rule, doesn't bor- 
row money of you ? 

A. Only when he is able to discount his purchases with 
but relatively small assistance from the bank. We do 
not encourage the lending of money by our officers to a 
merchant who will be unable to meet the obligations at 
an early date, even though he did supply a good indorser. 

Q. Because a small percentage of them can not half 
secure you? 

A. Money should be put into the business not in the 
shape of a loan, but in the form of capital. 

Q. How will he introduce capital; he is trying to get 
some capital to put in his business? 

A. No; we do not think we should go into partnership 
with him. 

Mr. Weeks. You do not propose to furnish capital to 
go into a business? 

A. No. 

By Mr. Hubbeu,: 

Q. How do you judge his ability to pay; there is a 
signed statement? 

A. That is not sufficient, even though it were an 
audited statement rather than a signed one, as the 
auditor's certificate usually certifies that the statement is 
correct as shown in the books, but having no regard to 
values. 

Q. Isn't he liable if he makes a false statement? 



105 



National Monetary Commission 

A. Yes; he would be for obtaining money under false 
pretenses, but prosecutions rarely follow, and the mis- 
demeanor is frequently difficult of proof. 

Q. That is your ordinary judgment of him and not 
from any ordinary figures he gives you? 

A. Yes; you have your judgment of the man and the 
statement he supplies. 

Q. You require both? 

A. I neglected, perhaps, to cover that ground fully. 
We should require, first, to know what the money was 
needed for; secondly, the character and capability of 
the borrower, and lastly, the security, either of himself 
or otherwise, that he had to offer. 

Q. That is the ordinary method? 

A. That is the ordinary method. 
By Mr. Vreeland: 

Q. Are bills to any considerable extent paid by means 
of time drafts? A manufacturer sells to a dry goods 
store a bill of goods, and makes a draft on them for two 
or three months? 

A. Yes. 

Q. Draft accepted? 

A. Yes. 

Q. Then the manufacturer takes the bill to the bank? 

A. Yes. 

Q. Is that thing done to any great extent? 

A. Yes. 

Mr. Weeks. Don't you think it would be a good thing 
to develop that idea? When the manufacturer or the 
builder sells he draws on the purchaser, and you get the 
two names — you know it is a bona fide transaction. 

1 06 



Banking and Currency Systems 

A. Yes; that is what we endeavor to develop. We 
should like to discount for a manufacturer only paper 
drawn on the purchaser and for which value had been 
given and received; but we frequently discount all such 
paper for him and supply him with some capital in ad- 
dition, although on the security of a pledge of his goods 
and perhaps an assignment of his book debts. 

Mr. HuBBEivL. Some of your firms refuse to give you 
their business paper and prefer to borrow on other firm 
paper ? 

A. Yes. 

By Mr. Vreeland: 

Q. Are there any defects in your system that you think 
should be corrected by additional legislation? 

A. The government will probably see sufficient defects 
without our suggesting any, and, so far as our side of the 
question is concerned, we would be, I think, content to 
leave matters as they now stand. 

Q. Do you think there should be any government 
laws as to examination, for example? You have no 
examinations ? 

A. You mean outside examinations? 

Q. Yes. 

A. External inspection? 

Q. Yes. 

A. I should certainly be in favor of inspection, either 
governmental or by the Canadian Bankers' Association, 
if it could be sufficiently thorough to do what it purports 
to do; but, on the other hand, if that can not be accom- 
plished, and I am somewhat doubtful of its practicability, 



107 



National Monetary Commission 

then I should prefer no inspection whatever, as it is only 
inducing deception by the banks seemingly making a 
profession to the public that an examination of their 
affairs has been made and found sound, which might be 
entirely misleading. The system of routine has been 
very much improved in late years in banks, so that 
adjustments as between branches in a large bank can now 
be made in a few hours, whereas a few years ago it was a 
matter of weeks, so that the inspection of banks, if- seri- 
ously undertaken, might, I think, be accomplished, 
although I am strongly of the opinion that it should be 
done through the Canadian Bankers' Association rather 
than the government. 

Q. Do I understand you are in favor of an examination ? 

A. Yes, decidedly so, provided it can be competently 
and thoroughly done. 

Q. If such an examination is made by accountants of 
character and reputation? 

A. I should not value the certificate of a chartered ac- 
countant. He undoubtedly could add up the columns 
and balance the books correctly, but when it came to a 
discussion of the merits of the paper, which really is the 
final analysis as to the solvency or otherwise of a bank, I 
would not give twopence for the opinion of the ordinary 
accountant, unskilled and inexperienced in valuing paper, 
and to which he would be an absolute stranger. 

Mr. Weeks. In an examination, you do not expect that 
they will pass upon the character of the paper. 

A.^No. 



1 08 



Banking and Currency Systems 






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109 



National Monetary Commission 

Interview with George H. Smith, Secretary of the Canada Permanent 
Mortgage Corporation. 

By Mr. Vreeland: 

Q. Mr. Smith, what is your bank? 

A. Our corporation is not a bank. 

Q. It is a form of bank? 

A. We do not call it a bank. 

Q. I take it you receive deposits ? 

A. We receive deposits. 

Q. And loan them? 

A. And loan them, primarily on real-estate securities. 
The name of the company is the Canada Permanent 
Mortgage Corporation, of which I am secretary. 

Q. Do you have debentures of your own to sell against 
these loans on which you guarantee the payment of the 
loan and interest? 

A. We issue debentures, but not against any particular 
loan or any particular number of loans. 

Q. They are general? 

A. General debentures. 

Q. With your responsibility added to them? 

A. With our promise to pay. 

Mr. Weeks. What rate of interest do you pay on de- 
posits ? 

A. Three and one-half per cent. 

Mr. Vreeland. Have you a statement with you of 
your bank? 

A. Yes. 

By Mr. Weeks: 

Q. Are these deposits subject to call? 

A. Subject to thirty days' notice. 



Banking and C urr ency Systems 

Q. They are not subject to check at all? 

A. They are subject to check with that reservation. 

By Mr. BonyngE: 

Q. Have you ever enforced the thirty-day notice? 

A. We never have. 

Q. Are there many such companies as your company 
in existence? 

A. Throughout Canada they vary slightly; there are 
some which do not take deposits, but only issue deben- 
tures. Of all classes, I should say there are seventy or 
eighty. 

Q. You are a member of the Bankers' Association? 

A. No. 

Mr. Weeks. Do you loan on all kinds of real estate 
or do you confine it to some particular class? 

A. No ; we make no restrictions. The application is con- 
sidered on its merits. There are many classes, of course, 
upon which we should be a good deal more careful in 
loaning than we should upon others. 

Mr. BonyngE. You loan upon urban and farm prop- 
erty? 

A. Both. 

Mr. Weeks. Do you know how much money is de- 
posited in Canada in such companies as you represent? 

A. The statement that the government issues from the 
returns made to it includes not only such companies as 
ours, but the trust companies as well, so that I can not 
answer that definitely. 

Mr. VREELAND. The government issues a separate re- 
port of that branch of banking? 



National Monetary Commission 

A. We have a report including the building associa- 
tions, loan companies, land companies, and trust com- 
panies. The total deposits by the last statement of all 
these companies, including the trust companies, are 
$22,953,000 — about $23,000,000. 

Mr. BonyngE. Is there a general statute governing the 
organization of such companies as yours, or do you get 
special charters? 

A. There is a general statute, and a few companies have 
special charters, but the special charters are very much 
along the line of the general statute. 
By Mr. VrEELANd: 

Q. Don't you have to get a special charter from Parlia- 
ment in all cases before you can commence business ? 

A. No; generally speaking that is so. But in Ontario, 
for instance, there was, some years ago, an act under which 
some of the companies were incorporated merely by order 
in council. Some of these companies are very old. A 
company coming up for incorporation now would have to 
get a special act. 

Q. They are separate institutions altogether that were 
incorporated under a general act? 

A. Yes; under a general act. You were speaking of 
the deposits and debentures. I might perhaps say that 
both under the general act and under any special act that 
a company might have it would be limited as to the 
amount it might receive in either of these ways. The 
total amount that any such company as ours can receive 
on deposit is limited to the amount of its paid-up capital. 
It is not permitted to receive them to an indefinite extent. 



Banking and Curr ency Systems 

Q. Your deposits can only be equal to your capital ? 

A. Yes; to the capital actually paid in. 

Q. Not even including your reserve? 

A. Not even including our reserve. 

Q. Your deposits are limited to $6,000,000? 

A. Our deposits are limited to $6,000,000, but the total 
liabilities, including both the deposits and debentures, are 
limited to four times the paid-up capital. You can see 
from our statement the larger proportion of our liabilities 
is debenture money. 

Q. When you receive deposits what rate of interest do 
you pay? 

A. Three and one-half per cent. 

Q. What do you give your customer; do you have a 
book or a certificate of deposit? 

A. Generally speaking, a book. He may have a certifi- 
cate of deposit if he prefers it. 

Q. What time do you give yourself for notice for re- 
demption? 

A. We reserve the right of thirty days' notice. As I 
stated in reply to some gentleman's inquiry a few mo- 
ments ago, we have never required that. 

Q. Always pay cash? 

A. Yes. 

Q. As a cash asset you have on hand money to the 
amount of a million and a quarter in this statement? 

A. Yes. 

Mr. Bonynge. Is your cash actually in your vault, or 
on deposit at other banks? 

A. Most of it deposited with the banks. 

22561 — 10 8 113 



National Monetary Commission 

By Mr. VrEELANd: 

Q. You have liabilities here of $17,000,000? 

A. Yes ; we are well within our statutory hmitation. 

Q. All of it payable at thirty days' notice? 

A. No ; the debentures are for various terms. 

Q. It is only your deposits that are payable that way? 

A. Yes. 

Q. Then you carry cash of about 25 per cent against 
your deposits? 

A. The actual cash exceeds 25 per cent, but we also 
have other quick assets. 

By Mr. Bonynge: 

Q. You have an actual cash reserve of more than 25 
per cent? 

A. Yes; and other quick assets in the shape of bonds 
and loans on call. 

Q. Do you loan upon unimproved property? 

A. No; it is not our practice to do so. 

Q. What per cent of value do you expect to loan, or 
don't you have any fixed proportion? Does the law make 
any limitations upon your loans? 

A. No. 

Q. It is just your own regulations? 

A. Yes. 

Q. Upon improved city property, say, in Toronto, 
what per cent of the value would you loan? 

A. Very rarely over 50 per cent. 

Q. And upon property in smaller towns you perhaps 
wouldn't go so high? 

A. No; from 30 to 40 per cent, as a rule. 



114 



Banking and Curr ency Systems 

Q. And for what time are these mortgages made — 
made payable at a year? 

A. Various terms. No; generally the terms are from 
five to ten years, with a condition for a small portion to 
be repaid each year, or each half year. 

Q. You do not follow the life-insurance custom of 
making them all payable in a year, with the understand- 
ing they can run upon the payment of interest? 

A. No. 

Q. How many of these companies are there in Canada? 

A. In the neighborhood of 70, I think. 

Q. How old is your company? 

A. We are a consolidation, about ten years ago, of four 
companies, the oldest of which was established in 1855. 

Q. Are you operating under a special charter, or under 
a general statute? 

A. Special charter. 

Mr. Hubbeu*. Do you have a large force of clerks? 

A. Yes; we have in addition to our office here five 
other offices throughout the Dominion. I suppose we 
have a staff in the neighborhood of a hundred altogether, 
perhaps more. 

By Mr. VreELANd: 

Q. You pay a 7 per cent dividend? 

A. We paid 7 per cent last year ; this year we increased 
it to 8 per cent. 

Q. With deposits of about $4,000,000 you held cash 
to the amount of a million and a quarter? 

A. Yes. 

Q. And your capital and reserve amount to $9,000,000? 

A. Yes. 

115 



CANADIAN BANK OF COMMERCE. 

General statement 30th November, 1908. 

LIABILITIES. 

Notes of the bank in circulation $9. 640, 845-68 

Deposits not bearing interest $22, 231, 129. 05 

Deposits bearing interest, including interest accrued 

to date 72, 806, 666. 97 

95.037.796.o2 

Balances due to other banks in Canada 165,408.36 

Balances due to other banks in foreign countries 1, 131,386.64 

Dividends unpaid 1,532.69 

Dividend No. 87, payable December 1 200, 000. 00 

Capital paid up 10, 000, 000. 00 

Rest 6, 000, 000. 00 

Balance of profit and loss account carried forward 161, 244. 88 

16,161,244.88 

122, 338, 214. 27 

ASSETS. 

Coin and bullion $4, 584, 049. 06 

Dominion notes 8, 503, 293. 25 

$13,087,342.31 

Balances due by other banks in Canada n, 850. 55 

Balances due by agents of the bank in the United 

Kingdom 6, 750, 669. 18 

Balances due by other banks in foreign countries 3, 191, 278. 88 

Notes of and cheques on other banks 4, 344, 762. 50 

14,298,561.11 

Call and short loans in Canada ' 7, 314, 181. 53 

Call and shortloans in the United States 10, 622 703. 14 

Government bonds, municipal and other securities 4.673 390.71 

Deposit with Dominion government for security of 

note circulation 450 000. 00 

50, 446, 178. 80 

Loans to other banks in Canada, secured 1, 061, 252. 09 

Other current loans and discounts 68, 694, 649.07 

Overdue debts (loss fully provided for) 143,648.74 

Real estate (other than bank premises) 36, 325 . 44 

Mortgages.. 27, 102.91 

Bank premises 1,727, 444 . 33 

Other assets - _. 201,612.89 

122, 338, 214. 27 

Alexander Laird, 

General Manager. 



Il6 



Banking and Currency Systems 

Interview with Massey Morris, Local Manager of the Canadian Bank of 
Commerce at Toronto. 

By Mr. Vreeland: 

Q. I assume, Mr. Morris, the management of your part 
of the bank here in the city would be like the management 
of any bank; you meet the customers and receive all de- 
posits and make the loans, and then your report goes to 
the general office here as it would if you were manager 
somewhere else? 

A. Exactly, yes; practically we are treated as if we 
were hundreds or thousands of miles away. Everything 
of the kind has to be put in the form of correspondence. 

Q. You conduct your business with the head office by 
correspondence? 

A. Yes; of course, here we have the advantage of being 
able to discuss things verbally more frequently than when 
we are at a distance. After any verbal discussion of that 
kind the decision arrived at has to be placed on record 
in the correspondence. 

Q. Then it is of not much matter here what your limita- 
tion, for instance, in making loans is, because the matter 
can be so quickly laid before the general manager ? 

A. Of course, we can get a decision quickly. 
By Mr. Bonynge: 

Q. How many branches are there in the city of Toronto? 

A. Of ours? 

Q. Yes. 

A. Up to a short time ago we had ten. I think there 
are ten or twelve. They are organizing two new ones. 



117 



National Monetary Commission 

By Mr. Vreeland: 

Q. They report to the head office, or to you? 

A. To the head office, just the same as others. They are 
separate branches. 

Q. I wish you would tell us, Mr. Morris, how money is 
sent from various parts of the country to other parts, and 
about the expense of it and the details of its management. 

A. We have to send from here, or from other circulation 
points west where circulation is accumulated, notes of 
the bank as required by the other branches; for instance, 
if our branch at Barrie, which is 60 miles north of this, 
runs short of our own currency, we supply it from here, 
send the bills up usually by registered mail, and insure 
them. That is our method in the case of our own notes. 
The notes we receive from Barrie of banks which haven't 
any branches there, and which they can not get redeemed 
there, they send down to us and we send them in to the 
different banks here for redemption. 

Q. That is the method with your branches? 

A. Yes. 

Q. I was speaking of exchange generally. Suppose I 
want to send $1,000 to some point in the Far West and 
applied here to the Bank of Commerce to send it? 

A. We just issue a draft on the branch concerned and 
that branch has to look after the payment of it, but we 
keep the branches in funds for the payment of these de- 
mands upon them in the way I have described. 

Q. If I want to send $1 ,000 out into the West you would 
give me a draft upon your nearest branch? 

A. Yes; suppose you were going to Vancouver and 
wanted to take or send $1,000, we should give you a draft 
on Vancouver and the branch there would cash it. 

118 



Banking and Currency Systems 

By Mr. BonyngE: 

Q. Suppose I was a depositor in the Bank of Commerce 
and was out at Vancouver and wanted to get $1,000, 
couldn't I go to the branch and present a check on the 
Bank of Commerce and have it cashed there? 

A. No; they would not know about you. 

Q. If I was identified as being the party? 

A. If you were identified and they were satisfied of the 
goodness of the check; certainly. 
By Mr. VrEELANd: 

Q. You have authority as manager of the Toronto 
branch to accept deposits to any amount, do you not? 

A. Yes ; no limit upon the deposit side. 

Q. How large a loan would you make without speaking 
or writing Mr. Laird? 

A. Five thousand dollars is supposed to be the limit. 

Q. I suppose that in the other branches in the city 
the limit would be even smaller than that? 

A. Yes. 

Q. Perhaps not over $ i, ooo? 

A. I think in some of the smaller branches the limit is 
even smaller than that. Practically no loaning business 
is done at the city branches. It is mostly all deposit 
business. 

Q. What would you charge me for a draft upon your 
branch at Vancouver? 

A. In some cases we might not charge anything where 
a customer had a nice account with us. We charge from 
an eighth to a quarter of i per cent. 



119 



National Monetary C ommiss to 



n 



By Mr. Bonynge : 

Q. Suppose I was a customer of a bank and sent my 
check from Toronto out to Vancouver in payment of a 
bill I owed in Vancouver, and that check was deposited 
in the branch bank, do you charge for the collection of 
the check? 

A. Yes; certainly. 

Q. How much would you charge for the collection of 
the check? 

A. Probably the same, an eighth to a quarter. 

Mr. Weeks. Would you charge any customer who kept 
a deposit here for any draft? 

A. Yes; we practically charge for everything. If we 
do not charge we expect to get an equivalent. We have 
to charge in some form or another. The customers will 
often make arrangements to keep a certain balance to 
their credit as an equivalent for the privilege of getting 
their checks cashed free of charge, or they will pay a fixed 
lump sum per month or per annum, or the account may 
be of so valuable of a character as to warrant our giving 
the privilege to them. In the absence of some arrange- 
ment of that kind a charge is made upon everything. 

Mr. VrEELAND. In the case of customers who keep a 
very small balance with you and not a remunerative 
balance, do you make a yearly charge for it? 

A. In some cases; yes. A monthly charge of 50 cents. 
By Mr. Weeks : 

Q. Suppose I have an account here of $10,000 in the 
bank and I want to pay a bill in Winnipeg, and I come in 
here with my check drawn on you for $1,000 and ask you 
for your check in place of it? 



Banking and Curr ency Systems 

A. We do not do that. We do not issue to depositors 
a cashier's check. 

Q. What would you issue? 

A. We would probably give you a draft on Winnipeg. 

Q. If you gave a draft on Winnipeg, would you charge 
me for that ? 

A. Yes. 

Q. Wouldn't you charge that direct to my account at 
once? 

A. Yes. 

Q. I would be drawing out my own money? 

A. Yes. 

Q. You would be charging me for drawing my own 
money? 

A. Drawing it out in Winnipeg. 

Q. I am drawing out my money here? 

A. If you draw it out here there is no charge on it. 

Q. But I draw it out in that way when you give me a 
check on Winnipeg? 

A. No; if you come in and get your check certified 
against your account we debit it to you. That is all we 
have to do with it. We have no further concern as to 
what happens to it until it comes back again and we have 
to pay it. But if you come in and ask us to certify your 
check and pay it up at Winnipeg, then we charge you 
for it. 

By Mr. Hubbbu,: 
Q. Suppose you are shipping money to the West, you 
wouldn't pay any premium? 
A. No. 



121 



National Monetary Commission 

Q. You do not buy and sell exchange on the West? 
A. No; we do not on Winnipeg. 

Mr. Weeks. Do your receipts from that sort of service 
amount to very much? 

A. In the aggregate it will amount to quite a little sum. 

By Mr. Hubbeu.: 

Q. When you receive a deposit from a customer here 
in Toronto containing checks all over the United States, 
do you immediately give him credit for those items, or 
is it dependent upon who the customer is? 

A. Dependent upon who the customer is, of course. 
If it is a customer in good standing, we have no hesitation 
in giving him credit at once. 

Q. You follow the collection of these checks by number ? 

A. Yes — I do not exactly catch the drift of your inquiry. 

Q. If I should send $5,000 worth of checks to Cleveland 
and I had 30 checks in that lot all over Ohio, you would 
want to have a report on each one of those checks? 

A. We would want to get returns on them. 

Q. You would want an individual report upon each one 
of the checks ? 

A. No; we follow in a general way and see they are 
all paid. We have to check them off when the returns 
come in. 

Q. Most of the checks we receive from Canada are 
numbered, and some of the banks require a report by us 
on these checks. 

A. Yes; they are numbered for the purpose of refer- 
ence. When the remittance comes in the payment is 
marked against the amount of the check. 



Banking and Curr ency Systems 

Interview with Alexander Laird; General Manager of the Canadian 
Bank of Commerce. 

By Mr. VreELAnd: 

Q. Mr. Laird, tell us about your branch banks here in 
the city. I understand Mr. Morris is at the head of your 
Toronto branch? 

A. Yes. 

Q. I suppose the general officers of the company attend 
to them themselves at the home office? 

A. Yes. 

Q. You treat the branch here as if it were a Montreal 
branch — that is, the reports from your branches here 
come in to the general officers the same as if from Mon- 
treal? 

A. Yes. 

Q. How many branches are there of the Canadian 
Bank of Commerce? 

A. I think 204. 

Q. That is, this morning? 

A. That is, this morning. 

Q. What cash reserve would you say banks carry on 
an average? 

A. I think an average of about 10 per cent, or perhaps 
a little higher. 

Q. You yourself carry a little more than that? 

A. We do not; we try to keep it about 10 per cent. 
We are not in favor, of course, of an arbitrary and fixed 
reserve. We think for the proper conduct of the business 
that we should keep it in reasonably liquid shape, and 
in our experience we find that about 10 per cent makes 



123 



National Monetary Commission 

us quite comfortable, and we do not need to bother from 
day to day about the cash reserve. That is, the actual 
cash reserve. 

Q. I see you put down here "coin and bullion"; 
what do you mean by " bullion " ? 

A. That is anything that has got an assay stamp on 
it. We should have bullion in Seattle from the Klondike. 

Q. Are these bars stamped? 

A. Yes. 

Q. What do you do with them? 

A. Just keep them, as they do in New York banks, 
in that shape rather than have the eagles and double 
eagles. 

Q. For export business ? 

A. No; primarily for our reserves, though they might 
be used for export business; but we do not do very 
much of that business. 

Q. What would you do with stamped bars in place of 
cash if you were getting them? 

A. All we have to do is to turn them in to the treasury 
in Seattle and we get treasury notes for these bars; 
and the same way in San Francisco. In San Francisco 
we may have some bars, and when you come to meet 
adverse clearing-house balances you simply hand in 
these bars and get your gold certificate. 

Q. You recognize gold bars as being pretty close to 
cash? 

A. Yes ; I should think so. 

Q. You seem to have very much more than 10 per 
cent in this statement. This is the 13th of November, 

1908. 

124 



Banking and Currency Systems 

A. Yes; of course there is a natural disposition on the 
part of any bank at the end of the year to show a good 
statement, not that we look for any better showing 
in that direction, certainly we did not seek to make it 
last year, but it did seem at the end that we had a great 
deal more cash than we had figured on. I should not at 
any time consider a statement showing 10 per cent in 
cash unfavorable to us at all. I should think a great 
many banks would not consider it advisable to show 
more. 

Q. Of your 10 per cent cash reserve, for instance, 
how much money have you on deposit in New York? 

A. We do not count that. 

Q. Or in Montreal? 

A. We do not count that. 

Q. You do not count that? 

A. No; it must be actual cash, gold or Dominion notes. 
It is the law. 

Q. Who has the say under the law? 

A. The Dominion government. 

Q. I did not know that they had any laws about 
reserves. 

A. Yes ; they insist upon our having 40 per cent of Do- 
minion notes. We have more than 40 per cent as a rule. 

Q. What reserve does your law require you to keep — 
what cash reserve? 

A. They do not restrict us. That is a matter that is 
regulated by ourselves. The Canadian Bankers' Asso- 
ciation has said that, in their opinion, there should be a 
uniformity of practice in the keeping of reserves. 



125 



National Monetary C ommissto 



n 



Q. That is what your association says? 

A. Yes. 

Q. I do not understand there is any Dominion law 
requiring any record of reserves? 

A. No. 

Q. But of whatever reserve you do carry, 40 oer cent 
must be in Dominion notes? 

A. Yes. 

Q. In your cash reserve you only include actual cash 
on hand at your branches? 

A. Yes. 

Q. You say here, "November, 1908, balances due by 
agents of the bank in the United Kingdom, $6,750,000; " 
what sort of agents were those? 

A. Our own branch and our agents, such as the Bank 
of Scotland. 

Q. These are all your agents? 

A. The Bank of England, too, would be included. 

Q. Any money that you have on deposit with the Bank 
of England? 

A. Yes. 

Q. Or with the Bank of Scotland? 

A. Yes. 

Q. Or any other English bank that acted as your agent? 

A. Yes. 

Q. Then "balances due by other banks, $3,191,000"? 

A. Other foreign banks. 

Q. Yes; and I notice you say, "Notes and checks on 
other banks, $4,300,000"; you do not call that cash? 

A. Actual cash; no. 



126 



Banking and Currency Systems 

Q. Yet you can get cash by presenting them? 

A. Yes; in the clearings the next day. But against 
that there must be a considerable amount in the hands 
of the other banks. 

Q. I notice you have $7,000,000 of call and short 
loans. What do you mean by short loans? 

A. Ten-day, fifteen-day, or thirty-day loans would be 
short loans. 

Q. Thirty-day loans? 

A. Yes; or less. 

Q. Where are your call loans? 

A. Some in Canada; mostly in New York. I mean 
strictly call loans. The money we have at New York 
or London would be strictly on call. There is not very 
much money with stock brokers in Toronto or Montreal 
that we would regard as strictly call. I mean that it is 
not as available as in New York. 

Q. I see you carry about $4,500,000 of government 
bonds other than municipal securities; do you and the 
banks generally make a practice of carrying more or less 
government bonds and other similar securities? 

A. Yes; I think they do. 

Q, For what purpose? 

A. We probably would have more than some of the 
other banks, except the Bank of Montreal, because of our 
connection with the Canadian Northern Railway Com- 
pany, which has a good many bonds to sell with govern- 
ment guaranties. As to municipal bonds, with so many 
branches we are often asked to help the municipalities in 
the negotiation of their bonds; sometimes we buy them 



127 



National Monetary Commission 

out and out, or if the amount is large we purchase them 
in combination with others. They would be held by us 
until such time as we could dispose of them, or if we 
thought the bonds extra good we might send them over to 
London and might watch our opportunity to sell them 
there, or if we did not sell them we might hold them as 
first-class collateral against any acceptance credit which 
we might get. 

Q. Then it is not for the purpose of carrying out any 
banking theory that you carry any securities of that kind? 

A. No. 

Q. You do not intend them as a secondary reserve? 

A. Yes; something of that kind. One important fea- 
ture in connection with our own business is that we try to 
put our securities in such shape that we can have the use 
of them should an emergency arise, either by selling them 
or by drawing against them by bills of exchange. In the 
meantime we are getting interest, and they form a sub- 
stantial reserve against any liabilities that we may have. 
By Mr. Bonynge : 

Q. Do you ever buy for your own use the bonds of an 
industrial concern? 

A. No. 

Q. And sell the bonds afterwards ? 

A. No; we have not gone into under writings of that 
kind. 

By Mr. WEEKS : 

Q. Do you consider the reserves kept by banks in 
Canada sufficient for the conditions that prevail here? 

A. Yes ; I should consider the reserves kept by our first- 
class banks, every one of them, quite sufficient for any 

128 



Banking and Currency Systems 

demand that is likely to be made upon them. The fact is 
that the banker here is a banker who knows his business, 
he has got that business to serve, and it would be very 
foolish for him not to protect himself in every way. I do 
do not believe in an arbitrary fixed reserve. I think the 
banker is the best judge as to how much he should have 
and where he should have it. 

Q. Do you consider the methods of issuing circulation 
sufficient to protect the public against any overissue or 
possible case of fraud that may arise? 

A. Yes; I do not see how it is possible to issue circula- 
tion beyond a certain amount. There is daily redemp- 
tion, and I can not conceive how you could suddenly put 
into circulation a considerable amount of the bills of any 
bank. 

Q. Do you believe that better results would be obtained 
if outside inspection of banks were made in Canada? 

A. As a banker of thirty-five years' standing, and one 
who had gone through every department of the bank, in- 
cluding the inspection department, and who knows what 
is involved in the inspection of a bank, I can not under- 
stand for a moment how any one can suppose that an out- 
side auditor could possibly give a correct report on the 
standing of a bank, or keep so in touch with all the busi- 
ness as to make it possible for him to certify that a bank is 
solvent. What we want more than anything else is some 
one that will tell us when we get hold of a piece of paper 
that is not very good, or a customer who is not very pros- 
perous. An auditor can not go through a bank and form 
a reliable judgment about the securities, or tell whether 

22561 — 10 9 129 



National Monetary Commission 

our customers are making a success of their business. As 
far as the matter of inspecting the securities is concerned, 
I can not imagine how any auditor, or body of auditors, 
could examine a bank such as we have, with 204 branches, 
when you find that with the division and subdivision of the 
work it keeps us going all the year and every day of the 
year to properly supervise this important work. 

Q. The theory is that the auditor or the manager would 
certify to the correctness of the returns that are made to 
the government, not that he would pass on the value of 
paper, though he might possibly want to inspect the loans 
of someone whom he knew was borrowing largely else- 
where. 

A. Yes; if he were able to get that information and 
put it in shape I think that it would do some good, but 
how is it possible to judge the business we do? I am 
perfectly satisfied that a man such as our finance minister 
in Canada would not know from the banker's standpoint 
what was good or bad business. Our system is a little 
different from what you have on the other side. We 
undertake to do all the business of a merchant. We will 
not divide an account. There are very few divided ac- 
counts in Canada, and if we did divide an account with 
another bank we should do it in a different way, and should 
ask and receive information from the other bank from 
time to time which would be a check on the customer. 
I would not take a divided account at all unless our rela- 
tions with the bank with which I was dividing the account 
were such that we could talk over from time to time how 
the account was running. 



130 



Banking and Currency Systems 

Mr. VrEELANd. Do you also know if a customer bor- 
rows in more than one place? 

A. At the beginning of the year we sit down and con- 
sider what our customers are entitled to as a full credit 
for their business, and we decide what we should give 
them. If a customer is to get $50,000 during the year 
we promise to supply him with that amount in the 
ordinary course of his business and during his season. 
We are always ready to respond to that call. 
By Mr. Weeks: 

Q. Are you satisfied with the postal savings banks as 
the policy is now carried out by the Canadian govern- 
ment? 

A. I do not know just now that there is anything to 
say on that subject. I think it is wise to have postal 
savings banks, although the banks cover the country 
pretty thoroughly. There is not a village or a hamlet 
of any great importance which has not got a bank, and 
we do not hear very much call for the postal savings 
banks. I do not know that I would say they should be 
withdrawn altogether, but I do think that the govern- 
ment should not take that money and pay more than 
the borrowing rules in London for it. It seems hardly 
economical for the government to pay to-day practically 
3^ per cent to a farmer when they could probably get it 
for about 3 per cent in London. When you have to sell 
your securities on the basis of a yield of 2.95 per cent it 
is absurd to pay over 3^ per cent for money. That is 
the rate, including the cost of administration. 

Q. Which would cost about one-half of 1 per cent? 



131 



National Monetary Commission 

A. The administration would cost about one-half of I 
per cent. 

Q. They estimate in this encyclopedia three-quarters? 

A. I have always considered it as being about one-half of 
i per cent. They come into competition with us and are 
paying more for the money than they should, and taking 
it out of the ordinary commercial banks of the country. 
We could take that money and employ it in the business 
of the country. They simply add it to the unfunded 
debt of the government. 

Q. Unfunded debt? 

A. Yes. 

Q. Payable on demand? 

A. Yes. 

By Mr. VrEELand: 

Q. I notice that you have to report all kinds of moneys 
unclaimed for more than five years? 

A. Yes. 

Q. Does the government take a benevolent interest in 
that fund with a view of acquiring it in time? 

A. There are indications from time to time that they 
would like to lay hands on it. 

Q. Do they, as a matter of fact? 

A. They have not done so yet, except in case of an 
insolvent bank. 

Q. Does the government admit a liability for accounts 
taken of that kind? 

A. They have got to admit liability, and if they take 
the funds they are responsible for the debt, deposit, 
unpaid draft, or deposit receipt. 



[ 3 2 



Banking and Currency Systems 

Q. Who gets the benefit of note issues which are lost 
and burned or mislaid? 

A. The bank would get the profit in that case. 

Q. That must be quite an item of profit? 

A. I do not think there is as much profit as one would 
suppose. 

Mr. Knight. It amounts to a fraction of one-half of 
i per cent; it is less than a half of i per cent. 
By Mr. BonyngE: 

Q. Do any of the chartered banks engage in under- 
wri tings ? 

A. No; not to any extent. Underwriting what? 

Q. Railroads or industrial concerns ? 

A. Railroads? 

Q. Yes. 

A. Yes; certainly. I thought you had reference to 
industrial concerns. 

Q. No. 

A. Yes; and they are quite glad to do it. 



T 33 



National Monetary Commission 



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'34 



Banking and Currency Systems 

Interview with Daniel R. Wilkie, General Manager of the Imperial 
Bank of Canada. 

By Mr. VrEELANd: 

Q. I have asked several of these gentlemen who have 
been here these questions somewhat as an expression of a 
personal opinion, particularly about reserves and the 
postal savings banks, and one or two other questions. 
I would like to know what you believe about reserves. 
Do you think your reserves are sufficient to properly 
safeguard the conditions of the banks? 

A. If your inquiry refers to Imperial Bank of Canada, 
I certainly think they are. Generally speaking, the cash 
reserves of the majority of Canadian banks might be 
larger. 

Q. Do you think that a fixed reserve under the law is a 
desirable thing, or should that be left to the bank? 

A. I think it should be left to the bank. A fixed 
reserve would probably be more harmful than otherwise. 

Q. You use your reserve, of course — a portion of it — 
in case of distress? 

A. There is a so-called ''fixed reserve" as regards the 
amount of legal tenders (government notes) which we are 
obliged to carry, but it is not fixed as regards any percent- 
age of liabilities. A certain proportion of our cash re- 
serves must be in government legal- tender notes, and our 
object during distress would be to increase them and 
realize on other liquid assets. During a period of strin- 
gency or expansion in trade we are obliged to draw upon 
our reserves other than cash reserves; these latter we 
endeavor to maintain through storm or sunshine. 



35 



National Monetary Commission 

Q. Your idea is that the reserve in normal times should 
be about 20 per cent, is it not? 

A. If you include in reserves balances due by other 
banks in Canada, in New York, and in London, I would 
not be satisfied with 20 per cent. 

Q. How much cash reserve do you average carrying in 
the bank? 

A. We carry as a rule about $7,000,000 of actual 
cash (gold and government notes), besides balances in 
New York, London, and elsewhere, amounting all the way 
from $2,000,000 to $4,000,000. I see that on the 31st of 
August, 1909, we had $7,500,000 in actual cash (gold and 
government notes), and that we had $5,600,000 in bal- 
ances due by New York, London, and elsewhere. That 
made 33 per cent of our liabilities. I do not say that this 
amount is necessary, as much depends on financial and 
political conditions from time to time. We might, for 
example, reduce this proportion during high rates for 
money in New York, and take advantage of the demand 
to lend a portion of the amount in that market. 

Q. You loan that through your New York banks? 

A. We loan that through our New York banks. 

Q. Do you think that your system of inspection is 
sufficient to care for your banks, or would you prefer a 
public inspection — governmental inspection? 

A. I look with horror upon a public inspection. I do 
not see how, physically, it would be possible to carry out a 
thorough inspection of the head offices and branches of 
banks extending from the Atlantic to the Pacific, and with 
further branches in San Francisco, New Orleans, London 



136 



Banking and Currency Systems 

(England), France, Cuba, Jamaica, Porto Rico, and else- 
where. It would be impossible for any public officer to 
inspect that number effectively ; it would take a magician 
to carry out the inspection; it would be a farce. It would 
be misleading, and do more harm than good. 

Q. Do you think the postal savings bank system in 
Canada is a good thing for the people tf Canada? 

A. I do, if it were not abused by the payment of an 
excessive rate of interest by the government, which should 
be able to attract deposits and serve every useful purpose 
intended by the offer of a rate of interest not exceeding 
2% per cent per annum. It is to be borne in mind that 
the moneys on deposit with the government are withdrawn 
from the trading capital of the country. The govern- 
ment pays 3 per cent on post-office savings accounts. 

Q. Plus the cost? 

A. Plus the cost of management. 

Q. Do you hear expressions of opinion from people who 
use these savings banks as to their desire to have that 
restricted method of depositing their money? 

A. One does not hear much from the people. One 
great inducement to make use of the post-office is the 
absolute secrecy observed, encouraging evasions and 
improper secretions as well as legitimate savings, which 
latter of course form the bulk of the deposits. A man 
who is a depositor in the government savings bank is the 
last man to say anything about it. 
By Mr. Bonynge: 

Q. There is no way of reaching it? 

A. There is no way of reaching it. 



137 



National Monetary Commission 

Q. Other than by legal process? 

A. Other than by legal process. The government will 
not give the information. It can not be had. The 
amount of money that can be deposited in any one name 
is limited. 

By Mr. Weeks: 

Q. To what amount? 

A. I think it is Si,ooo. The government policy is to 
encourage the lending of money by the people to the 
government for permanent works, canals, railway sub- 
sidies, public buildings — everything. It all goes into a 
pool, and until two years ago there was actually no cash 
reserve held against the liability. The government held 
no reserve. They now hold a reserve in gold or Canadian 
securities, guaranteed by the Imperial Government, equal 
to 10 per cent of the deposits. 

Q. Of what amount? 

A. Ten per cent, but in order to acquire that reserve 
they cut down the reserve against government notes in 
circulation, reducing that reserve from 25 per cent in cash 
or imperial securities upon a limit of $20,000,000 to 25 
per cent upon a limit of $30,000,000. 

Q. So the result was there was no current reserve 
against their double liabilities ? 

A. A reserve of 25 per cent in cash or debentures guar- 
anteed by the Imperial Government as against govern- 
ment notes in circulation, etc., and of 10 per cent in cash 
or imperial debentures against deposits in post-office 
savings banks. 



138 



Banking and Currency Systems 

Q. You think your circulation is properly protected 
against fraud and misrepresentation? 

A. No, it is not. There ought to be better control over 
the power that individual banks have of creating their 
own currency. Under the present conditions a bank 
authorized to issue, we will say, $1,000,000 of notes, in 
order to keep its branches supplied with a sufficient supply 
of notes, will have on hand ready for circulation from 
$2,000,000 to $3,000,000, but there is nothing to prevent 
their having $4,000,000 or $5,000,000. I do not think any 
advantage has been taken of the privilege, but the danger 
is apparent. I should like to see some control by the 
Bankers' Association of the total creation. Any excessive 
issue would probably occur during the last days of an 
institution, when demands of depositors would have to be 
satisfied. 

Mr. Bonynge. The last resort? 

A. Yes; and unintentionally, too. The managers of 
local branches can not tell what the total amount of notes 
in circulation might be at any one time over the whole 
system. 

By Mr. Hubbeix: 

Q. Could it be made use of with these branches during 
a time of stress and panic and then be rectified within 
a few days ? 

A. Yes. 

By Mr. VrEE^and: 

Q. What was the purpose urged in passing the act of 
1908 providing for additional circulation? 



139 



National Monetary Commission 

A. The reason was this : That during a few months of 
the year the amount of currency required to move the 
crops proved to be in excess of the authorized limit of 
circulation. 

Q. What year was that? 

A. It was 1906, and was the result of the crop move- 
ment of that year. At the same time the currency of the 
United States was limited, so that we could not obtain 
United States currency, and were constantly running the 
risk of being heavily fined for overcirculation, although 
unable to supply our requirements from any other source. 
The government at our suggestion came to the relief 
of the country and of the banks, and on terms permitted 
us to exceed our authorized circulation during four 
months of the year. 

Q. In 1907 your Canada capital was? 

A. Was $95,995,000, and the note issue was $77,000,000. 

Q. What month is that; December 31? 

A. October and November. The end of October is the 
crucial point. 

Q. You got up, then, $11,000,000? 

A. Eleven millions spread over 2,000 branches, or 
about $5,000 for each branch. 

Q. It is only in the crop-moving part of the country 
that you would use it — would need your cash? 

A. It wouldn't make any difference. That is all that 
would be left for any one branch, an average of an addi- 
tional $5 ,000. It is worse than that, because every branch 
has to be furnished with an ample supply at all times for 
till money. 



140 



Banking and Currency Systems 

Q. You did not have a central bank to distribute it 
among all your branches? 

A. The head office of every bank directs the distribu- 
tion of its notes among its branches. 

Q. You send it wherever you wish? 

A. We send it to all our branches as they require it. 

Q. You don't have to? 

A. Yes; we have to respond to their requirements. 

Q. Suppose there were $i i ,000,000 of additional currency 
needed to move crops, you would send it to the crop- 
moving part of the country, you would not sent it where 
it was not needed ? 

A. No ; but we should have to keep these other points 
supplied with circulation. We could not earmark 
$11,000,000 off the extra circulation. We should send 
the circulation wherever it was wanted. It may be to 
Alberta, it may be to British Columbia, or to Nova Scotia, 
or Quebec, or Manitoba. 

Q. You think that is a desirable law to have? 

A. I do. 

Q. To have all the reserve? 

A. I do not see any objections. 

Q. In case it was needed ? 

A. I think it was a very wise act. 

Mr. Bonynge. Have banks admitted exceeding circu- 
lation limit? 

A. Yes; unwittingly several banks have exceeded their 
authorized circulation. 



141 



National Monetary Commission 

By Mr. VrEELANd: 

Q. If it is not used it does not do any harm? 

A. If we use the emergency circulation we pay the 
government interest upon the amount made use of at 
5 per cent. We do not want to use it unless we have to. 
One bank helps another. If I found I was running up to 
my limit, I would make an arrangement with some bank 
that was not near its limit and get my requirements from 
them, paying them for it in gold or its equivalent. 

Q. I do not see any objection to the law, except that as 
it is intended as a crop-moving measure, the rate of in- 
terest would seem to be a little high? 

A. Yes, the rate is high; but the privileges enjoyed of 
being able to circulate up to the last dollar of the limit 
without penalty are worth it. 

Q. So the emergency act to which you referred is for a 
totally different purpose? 

A. Yes. 

Q. It is not intended to move crops ? 

A. It is intended to assist the movement of the crops. 

Q. It is purely an emergency measure? 

A. Yes. 

Q. About what is the average rate of dividends that 
the chartered banks pay ? 

A. The average rate is about 8^ P er cent, but the 
public is very much astray on that point. The pay- 
ment of &% or 8 K on the capital stock of a bank that 
has a reserve fund of ioo per cent is only an investment 
of about 4 per cent. If such a bank is paying 12 or 16 
per cent, you have got to divide it up as a return upon 



142 



Banking and Currency Systems 

the capital plus the reserve fund, because the bulk of the 
capital of the banks has been subscribed for at a premium 
equal to the proportion that the reserve fund bears to the 
capital at the time of the issue of the new capital, or has 
been bought in the open market at the current premiums. 

Q. What would you say the net earnings of banks are, 
as a whole? 

A. The net earnings on capital? 

Q. Yes ; the net earnings based upon capital. 

A. Not capital, but on capital and reserve? 

Q. No. 

A. I think about 15 percent. 

Mr. Weeks. Has not this reserve generally been earned ? 

A. Not always. I have not made up the figures, but a 
large part of the reserve funds has been paid in by share- 
holders, a very large proportion. 
By Mr. VreELANd: 

Q. Has been paid in? 

A. Has been paid in by shareholders. New stock issued 
from time to time. We started our bank on a paid-up 
capital of $500,000 and we have now $5,000,000. A mil- 
lion dollars, I think, was the original authorized capital, so 
that all the $4,000,000 has been new stock allotted to exist- 
ing shareholders from time to time at a rate of premium 
equal to the proportion that the reserve fund then bore 
to the capital. 

Q. Do they ever declare stock dividends ? 

A. No; never. It is the other way. Shareholders 
have to pay up the capital as well as the premium at which 
it is issued. 



143 



National Monetary Commission 

Q. And the reserve you mean? 

A. So as not to impair the reserve — not to impair the 
proportion the reserve bears to the capital. 

Mr. Bonynge. They have to pay for the new stock 
issued what the stock is actually worth? 

A. Less than that, as a rule, because the stock is 
generally worth more than what the reserve would rep- 
resent. Our reserve is ioo per cent of our capital, but 
our stock is worth in the market 229 per cent to 230 per 
cent. 

By Mr. Weeks : 

Q. You pay what dividend? 

A. Eleven. 

Q. About 5 per cent upon capital and reserve? 

A. Yes; something over 5 per cent. 
By Mr. Vreeland : 

Q. It would be your opinion that a considerable por- 
tion of the seventy-odd millions of reserve of the char- 
tered banks had been paid in instead of earned? 

A. A considerable proportion has been paid in. 

Q. Would you say a quarter of it had been paid in ? 

A. More than a quarter. 

Q. A half? 

A. I should think a half; yes. 

Mr. Knight. I thought about a third. 

Mr. WiivKiE. You can get the exact figures. I should 
not be surprised if it was 50 per cent. 

Q. Any agitation in Canada for a guaranty of deposits 
under government supervision? 

A. No; we couldn't stand that. 



144 



Banking and Currency Systems 

Q. You have not noticed perhaps that Texas is adopt- 
ing that? 

A. Yes; I saw that. Oklahoma has adopted it. 
By Mr. Weeks: 

Q. If I remember correctly, you have about 20 banks 
less than you had twenty-five years ago in Canada. 

A. I do not think 20. 

Q. You had 48 banks at one time? 

A. No; I do not think so. We may have had 36 

or 37- 

Q. What I wanted to ask was whether the capital 
was distributed enough ; if there were not enough agencies 
for the business, whether there would not be an outcry 
some day that banking in Canada was a monopoly 
which would be injurious to the existing banks to some 
extent? 

A. They can not charge that at present. I have just 
come back from a village in the northwest and I dis- 
covered three banks in a place where there was not busi- 
ness enough for one. At the present moment the branch 
idea is being carried on to excess. 
By Mr. VrEELANd: 

Q. That would not affect the question, because you 
do not require additional capital where you put in ad- 
ditional branches ? 

A. No. 

Q. A thousand different branches would not require 
any additional capital? 

A. No; I think the banks are only too willing and 
ready to open branches wherever there is an opportunity 

22561 — 10 10 145 



National Monetary C ommis sio 



n 



of doing business; but bear in mind that without our 
system of currency, without the inducement of being 
able to supply the currency required from the banks' 
own issues we could not keep the bulk of our branches 
open. If our currency laws were changed and we are not 
permitted to issue our own notes, nine- tenths of these 
branches would be closed. It would not pay us. It 
is only because we have unlimited till money always 
available. It is only because we have power to issue 
our own bills that we are opening branches. That is 
the crux of the whole matter. It is not only the starting 
point of our banks, but without our banking system 
we could never have developed the country to the con- 
dition it is in to-day. It could not be done. 

Q. What per cent of profit do you figure you can make 
on your notes? The profit on notes in the States was 
modified very much by having to have government bonds 
and the loss of the premium on them, and also they have 
a tax on circulation, although it is not large, but still they 
make little profit. 

A. It is very hard to say, because one element is inter- 
woven with the other. Our bank has a circulation of 
$3,422,000 (August 31), but under our system we are 
holding $6,000,000 of government bills from which we get 
no interest whatever. 

Q. Why are you obliged to hold that amount of Domin- 
ion notes? 

A. Because we allow ourselves to hold a larger propor- 
tion of them than necessary. We might hold gold for 
about half of that amount. 



146 



Banking" and Curr ency Systems 

Q. The law says whatever reserve you do hold you 
must have 40 per cent actual cash reserve in government 
notes. 

A. Yes. 

Q. How much do you hold? 

A. Six millions. 

Q. Is that only 40 per cent of your actual cash reserve? 

A. No ; it is about 80 per cent. What I mean to say is 
this, that the profits that we make upon circulation can 
not be calculated directly, because the advantage of till 
money, which costs us nothing to carry, is of considerable 
importance. 

Q. It takes the place of cash? 

A. Yes; it takes the place of cash. 

Q. It is a fictitious capital? 

A. It is a fictitious capital if you put it that way; yes. 

Q. Here is your report, which shows a cash reserve of 
$8,481,000; you have to have 40 per cent of that in 
Dominion notes? 

A. Yes. 

Q. That would be a little over $3,000,000? 

A. Yes. 

Q. I understood you to say you had $6,000,000? 

A. That depends upon the particular month to which 
you refer. 

Q. You actually did have $7,300,000? 

A. Yes; on the particular date to which you refer. 

Q. But you did not have to have that amount? 

A. No ; we did not have to. 



147 



National Monetary Commission 

Q. Your actual circulation was $3,115,000; I do not see 
that it has anything to do with your holding of Dominion 
notes as a part of your reserves. Suppose you had to 
have gold? 

A. Suppose we had a large part of that in New York 
bearing interest on deposit with banks, or had it in London 
bearing interest ; supposing we had the gold on deposit in 
New York, that would be counted as gold on hand. 

Q. As I understand, you fully agree that a large cash 
reserve should be kept? 

A. Yes. 

Q. I think you put it at 20 per cent or better? 

A. Better. 

Q. Or more? 

A. More. 

Q. Didn't I understand you thought you had 20 per 
cent? 

A. I said more than 20 per cent. 

Mr. Bonynge. In your own vaults ? 

A. In our own vaults. 
By Mr. Vreeland. 

Q. Suppose the law was that you should be obliged to 
keep 20 per cent? 

A. Yes. 

Q. Of the deposits on hand. 

A. Yes. 

Q. In gold coin. 

A. Yes; in gold coin. 

Q. You have to have that amount on hand? 



148 



Banking and Currency Systems 

A. We might keep the gold on deposit in New York, 
and we could use the excess beyond the 20 per cent from 
time to time. 

Q. You could not keep it in New York and count it as 
a cash reserve? 

A. Yes; certainly; actual gold on hand with our agents. 
We do not do it, but it can be done. 

Q. I should not think it would be a proper cash reserve 
if it is in New York. 

A. You have the same thing in the United States — you 
have your reserve cities. 

Q. But central reserve banks have to keep 25 per cent 
actual cash on hand? 

A. It would be just as much a million of gold in New 
York as a million of gold here. 

Q. There would be no object in keeping it there? 

A. No; except that we could use the surplus amount 
on hand from time to time. 

Q. Your reports say that the average amount of circu- 
lation is $75,000,000. 

A. Yes. 

Q. The moment that is in the bank it is out of circula- 
tion? 

A. Yes. 

Q. That is the amount which is in circulation? 

A. That is the amount which is in circulation. 

Q. Presumably loaned out? 

A. Presumably loaned out or paid out to depositors in 
the ordinary course of business. 



149 



National Monetary Commission 

Q. On that $75,000,000 what would you say the profit 
is to all of the banks that own it? 

A. I would not like to say. 

Q. Suppose the cost of issuing and redemption amounts 
to 1 per cent, what other expense would you charge 
against it? 

A. The tellers' salaries. 

Q. Who? 

A. The tellers, the men who look after the notes and 
separate them from notes of other banks. 

Q. That would be small in the small banks ? 

A. Yes; but the proportion of expense to circulation 
would be the same. 

Q. You would not have to employ extra help in order to 
separate the notes? 

A. Yes. 

Q. The ordinary teller would have ample time to keep 
them separated? 

A. It would take up time that would otherwise be de- 
voted to some other duty, necessitating a larger staff. 

Q. We will assume there is some additional help needed 
on account of the notes; what other expense? 

A. I do not know that there is anything else beyond the 
custody of the notes, and their sorting up every day, and 
the sending in of the other bank notes for redemption. 

Q. That is included in the 1 per cent I have allowed for 
issuing and redemption. I think that would cover the 
issuing and redemption. 

A. Yes; the issues have to be renewed, of course. I 
would not be prepared to say, Mr. Vreeland, what the 



150 



Banking and Currency Systems 

profit would be, because I do not think it can be worked 
out that way. You can not work out the direct profit on 
circulation. 

Q. You say that the value would be 4 per cent upon the 
amount actually in circulation to the issuing banks? 

A. Less the actual outlay connected with the manage- 
ment of the circulation and a proportion of the cost of the 
management of the branch banks. 

Q. What do you figure the profit is to a bank on money 
that you pay 3 per cent for and loan at 6 per cent? 

A. We give our branches 4 per cent on the auxiliary 
capital furnished head office ; that would be 1 per cent be- 
yond what they pay to their depositors. 

Q. Would you figure 2 per cent? 

A. Two per cent would be an excessive rate when allow- 
ance has to be made for the expense of head office manage- 
ment and the proportion of the amount which has to be 
held as a reserve. From 1 per cent to 1 y 2 per cent net over 
the cost of the deposit to the branch is a fair allowance. 



151 



BANK OF MONTREAL. 

Statement for the half year ended April 30, 1909. 

Balance of profit and loss account, October 31, 1908 $217,628.56 

Profits for the half year ended April 30, 1909. after deducting charges 
of management and making full provision for all bad and doubtful 
debts 860, 682 . 49 

1,078,311. 05 
720, 000. 00 



Quarterly dividend, 2% per cent paid March 1, 1909 $360,000.00 

Quarterly dividend, 2^ per cent payable June 1, 1909 — 360, 000. 00 



Balance of profit and loss carried forward 358. 311. 05 



Note. — Market price of Bank of Montreal stock, April 30, 1909. 250 
per cent. 

GENERAL STATEMENT. 

LIABILITIES. 

Capital stock $14. 400, 000. 00 

Rest $12, 000, 000. 00 

Balance of profits carried forward 358, 311. 05 



Unclaimed dividends 

Quarterly dividend, payable June 

:2, 720, 754. 06 



12 


.358, 


3ii. 


OS 




2, 


443. 


01 




360, 


000, 


00 



Notes of the bank in circulation 10, 455,537. 00 

Deposits not bearing interest Si. 620, 373. 35 

Deposits bearing interest 118, 617, 801. 53 

Balances due to other banks in Canada 124, 529. 80 



27, 120, 754. 06 



1,818, 241.68 



207,93».99S- 74 



ASSETS. 

Gold and silver coin current 6, 287, 370. 53 

Government demand notes 12, 925, 806. 25 

Deposit with Dominion government 

required by act of parliament for 

security of general bank note circu- 
lation 600, 000. 00 

Due by agencies of this bank and 

other banks in Great Britain $4, 839, 298. 23 

Due by agencies of this bank and 

other banks in foreign countries 7, 109, 409. 64 

Call and short loans in Great Britain 

and United States 80, 658, 497. 00 

92,607,204.87 

Dominion and provincial government securities 530, 152. 88 

Railway and other bonds, debentures and stocks 8, 567, on. 26 

Notes and checks of other banks 3, 682, 086. 41 

125,199,632.20 

Bank premises at Montreal and branches 600, 000. 00 

Current loans and discounts in Canada and elsewhere 

(rebate interest reserved) and other assets 81, 914, 981. 49 

Debts secured by mortgage or otherwise 118, 421. n 

Overdue debts not specially secured (loss provided 

for) 105, 960. 94 



!2, 139,363-54 

207,938,995-74 

E. S. Clouston, 
Bank op Montreal, General Manager. 

Montreal, April 30, I goo. 

152 



Banking and Currency Systems 

Interview with Sir Edward Clouston, General Manager of the Bank of 

Montreal. 

By Mr. VrEE^and: 

Q. This statement, Sir Edward, which you have pro- 
duced, is an older statement than your annual, the one 
that you publish? 

A. Yes; we publish ours every six months. We are 
the only bank that does. 

Q. The law requires you to publish it once a year? 

A. That is all. 

Q. You publish it voluntarily again? 

A. Yes. 

Q. At the end of six months? 

A. Yes. 

Q. Your capital is now $14,400,000, and surplus 
and undivided profits $12,358,000, making a total of 
$27,120,000. The Bank of Montreal, if I remember 
right, for a good many years was the largest bank on 
this continent? 

A. Yes ; it must have been. The only bank I know of 
larger now is the National City. Is there any other? 

Q. I think perhaps the National Bank of Commerce of 
New York is just about your figures. 

A. Has it as much as that? 

Q. Yes; you can issue your notes to the amount of 
your capital; I see on this statement that you have about 
$4,000,000 of notes unissued? 

A. Yes ; that is the period at which our issue is lowest. 

Q. Your deposits not bearing interest seem to bear a 
considerably larger proportion to the whole deposits 
than the other banks that we have noticed so far? 

153 



National Monetary Commission 

A. Yes; we have so many government and railway ac- 
counts. 

Q. That is accounted for by government accounts and 
other accounts of large corporations? 

A. Yes. 

Q. And other large accounts? 

A. Yes. 

Mr. Weeks. Do you have all the government business? 

A. We have the most of it, but a number of the other 
banks have small deposits. The principal account is kept 
with us. In fact, we are the government bankers. 

Mr. BonyngE. You act as the official agent of the 
government ? 

A. Yes; here and in London. We issue all their loans. 

Mr. Weeks. That is because you are the largest bank; 
it has nothing to do with your charter conditions? 

A. No; simply because we have the government busi- 
ness. 

By Mr. VrEELAnd: 

Q. When was the bank of Montreal originally chartered ? 

A. In 1 817. I do not think we got our charter properly 
until 1818. 

Q. That would also account for your having the gov- 
ernment business; you were really the first large bank? 

A. No; the government business was held by the bank 
of Upper Canada for a number of years. 

Q. That was before confederation of the Provinces? 

A. Yes. 

Q. Government demand notes are simply government 
loans without interest? 



154 



Banking and Currency Systems 

A. No; they are Dominion notes. 

Q. You carry a much larger proportion of Dominion 
notes than the law requires you to? 

A. Yes. 

Q. Forty per cent the law says it shall be? 

A. Yes. 

Mr. Bonynge. You are carrying one-fifth of all the 
Dominion notes that are issued, are you not? 

A. The total amount of Dominion notes is about 
$70,000,000 — $69,000,000. I am speaking from memory. 

Mr. VREEivAND. You carry a cash reserve; these two 
items gold and silver and government demand notes, that 
is the cash reserve carried in your own banks or branches ? 

A. Yes; in our own safes. It does not really represent 
our position, because we carry gold in other places. We 
carry gold in Newfoundland and Chicago and Mexico. 
That is, outside of the Dominion. This only refers to the 
Dominion. In fact, at times we could not insert our total 
gold holdings or we would get beyond the 40 per cent. 

Mr. Bonynge. When you speak of carrying gold outside 
of the Dominion you mean with your own branches outside 
of the Dominion? 

A. Yes; our own branches. 
By Mr. VreELand : 

Q. At the date of this statement you give 10 per cent 
of actual cash in your safes besides the amounts due you 
from your own outside branches and from other banks? 

A. Yes. 

Q. This deposit with the Dominion government would 
be under the 5 per cent deposit for note issue? 

A. Yes. 

155 



National Monetary Commission 

Q. And you have due you in agencies of this bank and 
other banks in Great Britain — those are cash balances due 
you? 

A. Yes. 

Q. Either from your own agencies or other banks in 
Great Britain? 

A. Yes. 

Q. Due by your agencies and other banks in other for- 
eign countries? 

A. That would be in the United States and Mexico. 

Mr. BonyngE. How many branches have you, sir? 

A. They change. About 1 50 I should think. One was 
opened the other day, and one will be opened in a few days, 
By Mr. VrEBLAND : 

Q. The cash in your own safes and cash due you from 
other banks, including your own branches abroad, would 
amount to something like $30,000,000? 

A. Yes, about that. 

Q. Your deposits, liabilities, and notes would amount to 
about $186,000,000? 

A. Yes. 

Q. Then you have practically a cash reserve of some- 
thing like 16 per cent? 

A. About that. 

Q. At the date of this statement? 

A. Yes. 

Q. Then your quick assets in call and short loans, what 
time would you call a short loan ? Say ten or fifteen days ? 

A. A short loan represents only the small amount we 
loan in London, what we call " stock-exchange " loans. 



156 



Banking and Curr ency Systems 

These loans are not callable every day, as in New York. 
From settlement to settlement, taking place every fortnight. 
The rest of it is all call money. 

Mr. Bonynge. You loan in New York principally? 

A. Principally in New York. 

By Mr. Weeks: 

Q. I suppose you carry such a large sum in that way 
to protect your gold in case of emergency and to keep 
the money employed? 

A. To protect any heavy demand. 

Q. You have a much larger proportion of your assets 
loaned in that way than any other bank I have noticed? 

A. Very much larger. 
By Mr. VreELANd: 

Q. The purpose of your carrying so large an amount of 
foreign loans would be for the purpose of putting you in 
a position to realize quickly upon assets for any demands 
which might be made upon you and not, I judge, for the 
same purpose, for instance, that the banks of Belgium 
and France and Germany keep a considerable amount of 
foreign bills, to protect them from withdrawals of gold? 

A. Yes. 

Q. Or shut it off? 

A. Yes. 

Q. Gold, as far as I have noticed, does not play any 
great part in your banking system? 

A. No; it does not enter into it to any great extent. 
By Mr. WEEKS : 

Q. Do you think that the gold carried in your reserves 
is sufficient to form a basis for the future development 

157 



National Monetary Commission 

of Canada? It seems low to me. I would like to have 
your judgment on that. 

A. We do not carry much gold. If we were dependent 
upon this gold entirely it would not be anything like 
sufficient to form a basis, but we practically look upon 
all these gold loans out of the countiy as gold that we 
can put our hands on within twenty-four hours. There 
is nothing to prevent us calling all the loans we have in 
United States and England to-day, and we could have 
the whole of them called in in Xew York within twenty- 
four hours, and the gold thus realized in Canada as soon 
as the express companies could bring it here. 

Q. You ship very little gold to the United States ; you 
are in a position of loaning your money in Xew York 
and drawing gold against those loans if you wish to? 

A. Yes; we ship gold occasionally, but not very largely. 

Q. You wouldn't consider your reserves of gold suffi- 
cient unless you had these demand loans and short loans 
in London and Xew York for the general banking pur- 
poses of the country? 

A. We should increase our gold very much if we did 
not have them. We have to carry a rather larger reserve 
than the other banks because in case of trouble we are 
apt to be the ultimate source of supply. 
By Mr. Yreelaxd : 

Q. You really act as the central bank here, do you not? 

A. We do not wish to claim the position, but we are 
forced into it very often. 

Q. I was inquiring if, in your opinion, inasmuch as the 
government does not need them especially, it would not 



158 



Banking and Currency Systems 

make the banking system stronger if you could substitute 
gold in place of the 40 per cent of Dominion notes ? 

A. Yes; it would, except that the Dominion notes are 
always supposed to be backed up by gold, or means of 
acquiring gold. They are practically receipts for gold. 

Q. If they actually called for gold on demand, that 
would mean that your Dominion government must keep 
a large reserve of gold useless for the purpose of protect- 
ing it? 

A. They have to keep that gold against it. They do 
not actually keep the gold, because they have a certain 
amount of debentures which they hold. They only keep 
15 per cent in gold up to $29,000,000. 

Q. Your Dominion act provides: "The minister of 
finance shall always hold as security for the redemption 
of Dominion notes up to and including $30,000,000, 
issued and outstanding at any one time, an amount 
equal to not less than 25 per cent of the amount of such 
notes in gold, or in gold and securities of Canada? " 

A. Yes. 

Mr. Bonynge. Above the $30,000,000 you have dollar 
for dollar? 

A. Dollar for dollar. 
By Mr. Vreeland. 

Q. The amount so held in gold shall not be less than 15 
per cent of the amount of such notes so issued and out- 
standing? 

A. Yes. 

Q. I assume the other 10 per cent would be Dominion 
securities? 



159 



National Monetary Commission 

A. Yes; securities of Canada, the principal and interest 
of which are guaranteed by the Imperial Government. 

Q. You say the amount of Dominion notes now issued 
is about $69,000,000? 

A. $69,000,000, I think. 

Q. What is the present law as to the redemption of 
them? They are supposed to be redeemable on demand? 

A. On demand. 

Q. Is the law unchanged that I have just read saying 
25 per cent, 10 per cent of which may be in securities? 

A. Yes; that is up to $30,000,000, I think you said? 

Q. Yes. 

A. Beyond that they have to hold dollar for dollar in 
gold. 

Q. And it is now carried out? 

A. Yes. 

Q. Above the $30,000,000 they would have an equal 
amount of gold on hand? 

A. $35,000,000 in addition to the 10 per cent. 

Q. Makes it something like our gold certificates in the 
States? 

A. Yes. 

Mr. BonyngK. That gold is held by the Dominion 
treasurer? 

A. Dominion treasurer. The receiver-general we call 
him. 

By Mr. Vrebland: 

Q. Where, besides the Dominion treasury, are they 
redeemable? 

A. Only at the Dominion treasury. 



160 



Banking and Currency Systems 

Q. No other part of Canada? 

A. There are several assistant receivers-general in 
Canada — Montreal, Toronto, Winnipeg, etc. 

Q. Redeemable at any of those places where there is a 
receiver-general ? 

A. Yes. 

Q. The money received through your postal banks, I 
understand, is treated as current funds, turned into the 
general treasury? 

A. Of the Dominion government. 

Q. No reserve is kept against them ? 

A. Yes; they have to keep a reserve, 10 per cent, I 
think; they established it recently. 

Mr. BonyngE. In gold? 

A. Yes; or in gold and Canada securities guaranteed 
by the Imperial Government. 

Mr. VREEivAND. One gentleman said yesterday that 
they had to keep a small reserve against the postal 
receipts, but reduced it on Dominion notes? 

A. No; I do not think they reduced it on Dominion 
notes. It is a small reserve. 
By Mr. Weeks: 

Q. I would like to ask you, Sir Edward, if you think 
that the organization of the postal savings bank system 
is an advantage to the people of Canada, or would be of 
advantage to the people of the United States ? 

A. It enables the government to say that they have a 
safe place for the savings of the people. If they are doubt- 
ful of any bank they can go to the government and deposit 
it there and it is supposed to be safe, but they do not 

22561 — 10 11 161 



National Monetary Commission 

interfere with our deposits much. We do not believe 
they are competitors, because anything connected with 
the government necessarily carries a certain amount of 
red tape. I do not think the deposits of the government 
have increased materially for quite a number of years. 

0. Is not the government paying too high a rate of 
interest on these receipts ? 

A. We think so. They are paying the same rate of 
interest the banks are paying, 3 per cent; but we say if 
they insure security, as they say they do, they should 
reduce the rate. 

Q. If they had to reduce the rate of interest the proba- 
bilities are the receipts would not be as great even as they 
now are? 

A. No; they possibly feel they would have to meet 
withdrawals. 

Q. Do you think they might reach a condition, sir, 
practically where enough money will be drawn out of the 
banks and deposited in the postal savings banks to be 
embarrassing in a critical situation? 

A. No; practically not. The practical working would 
be, if they withdrew it from the banks and deposited it 
with the government, the government would redeposit 
it with us, and that would assist the banks from which it 
would have been withdrawn. It would really make no 
difference to the country. 

Q. Having a small number of banks you could do that? 

A. Yes. 

Q. Very easily? 

A. Yes; the government redeposits with us immedi- 
ately. All the departments deposit it, and it passes into 

162 



Banking' and Currency Systems 

the bank where it can be immediately used for the good 
of the community. During the period in 1907 and 1908, 
when money loaned for 100 per cent in the United States, 
the rate for money from here to the Pacific did not ad- 
vance more than 1 per cent, and that was more in the way 
of bringing pressure on the people to reduce their bor- 
rowings. 

By Mr. BonyngB: 

Q. As I understand, the postal receipts are deposited 
by the government where they are needed for govern- 
ment purposes? 

A. We know nothing about it. It passes into the 
general balances of the government. They do not 
segregate it, so far as their accounts with us are concerned. 

Q. Nor do they keep separate the money that is ac- 
tually received from the postal receipts? 

A. No. 

Q. The Dominion treasurer does not retain that money? 

A. No; if there were any danger at all it would be 
owing to withdrawals from the government postal savings 
bank. Then they would have to get the money to 
meet them, and it would mean they would draw on us 
very heavily, and we should probably have to issue loans 
for them. It is not a very serious contingency. 

Mr. VreELAnd. The burden then really rests upon 
the banks ? 

A. It comes back to them, chiefly to the Bank of 
Montreal. 

Mr. BonyngE. The bill proposed for us provides for 
loaning that money from the treasury to the banks 

163 



National Monetary Commission 

n the locality from which it is collected and banks pay- 
ing a small rate of interest for the money redeposited 
with them by the Government. 

A. That would improve it to a certain extent. 

Mr. Vreeland. I see that you have notes and checks 
of other banks amounting to $3,682,000. I think that 
you treat that as part of a reserve. You would be en- 
titled to call that a cash reserve, because you could take 
it to the clearing house and get the money for it? 

A. Yes. 

Mr. Bonynge. As against that, aren't your checks 
also outstanding? 

A. Yes; we do not treat that as an important part 
of our reserve, because there would be about the same 
amount coming in against us from other banks. 
By Mr. Vreeland: 

Q. I notice that you carry bonds and pledges for stock, 
$8,500,000. What sort of stock do you carry? 

A. We haven't very much in stock just now. We have 
some Canadian Pacific stocks, a small amount. 

Q. I suppose the bulk of that is in bonds? 

A. Bonds, yes; largely in government bonds. 

Q. Railway bonds? 

A. And railway bonds. We have also Great Northern 
stock, and Northern Pacific to a limited extent. 

Q. Do you carry bonds, government or otherwise, 
first-class bonds, with any idea of using them as a sec- 
ondary reserve? 

A. No. 

Q. To sell? 



164 



Banking and Currency Systems 

A. No; we do not. Any bonds that come to us are 
generally in connection with special operations. For 
a reserve they are not a very good banking proposition, 
but then, as an immediately available reserve the best 
securities are not the best reserve. We had an experience 
once in old days in the United States when there was 
a crisis there; we held very high-class bonds and these 
bonds returned a low rate of interest, but we found 
that we were not able to sell them, because the class of 
people who invested in such bonds had practically with- 
drawn from the market. That is why I say for purposes 
of a reserve gilt-edge bonds are not the best reserve. 

Q. The great trouble with some of the best securities in 
times of widespread crises is that you can not sell them 
except at a sacrifice? 

A. Exactly. Some of the heaviest losses have been 
made by English banks holding English consols. 

Q. The English Government through her postal depart- 
ment suffered severely? 

A. Yes. 

Q. I think over $500,000? 

A. Some of the banks also suffered very heavily. 

Q. To return to your Bank of Montreal statement, you 
show loans and discounts about $82,000,000? 

A. Yes. 

Q. What you call commercial paper in its widest sense, 
including all sorts of time paper upon which you receive 
interest or discount, does that follow or run along about 
the same lines as ours does in the States? 

A. I think so. 



165 



National Monetary Commission 

Q. Rather than the English and French lines of paper; 
that is, trade bills, drafts upon time? 

A. Commercial paper, that is , paper given by a merchant 
to a customer who banks with us. Commercial paper 
with us is negotiable paper given by a merchant in settle- 
ment of his purchases from one of our customers. That, 
I take it, is what is understood by commercial paper all 
the world over. Outside of that we have no other security. 

Q. What is the practice with your Montreal merchants, 
for example, merchants here of first-class credit, how do 
they pay their bills? Do they make their banking 
arrangements with their home banks and pay their bills 
by check, availing themselves of cash discounts, and 
would such commercial firms but rarely give notes or 
accept drafts? 

A. They sometimes accept drafts or give notes for their 
foreign purchases, but they usually settle their domestic 
accounts by check, taking advantage of cash discounts. 

Q. They would go to their local banks and make satis- 
factory arrangement to procure the money to pay their 
bills? 

A. Yes. 

By Mr. Bonynge : 

Q. Do you own your buildings for your branches 
throughout the Dominion? 

A. Very largely. We have in Montreal this building 
and seven other buildings. 

Q. You own seven other buildings in this city? 

A. Yes. 

Q. How many branches have you in Montreal? 



1 66 



Banking and Currency Systems 

A. Seven. We have subagencies in other centers, such 
as Toronto and Winnipeg. 
By Mr. Weeks: 

Q. Are all these buildings carried at $600,000? 

A. Yes; and we are just about to erect a building in 
Winnipeg; I do not know what it will cost, but it is to be 
a fine building. We have also recently bought a build- 
ing in Wall street, but your laws will not allow us to hold 
it in the name of the Bank of Montreal. 

Q. Because you are a foreign corporation? 

A. Yes. 

Mr. VrEELAND. That is the law in the State of New 
York. 

Mr. Weeks. That is the law of the United States. 
By Mr. Bonynge : 

Q. It is a law of the State of New York. 

A. Probably each State makes its own laws in that re- 
spect. 

Q. You maintain a branch in New York? 

A. Yes. 

Q. How many branches have you in the United States? 

A. Three, Spokane, Chicago, and New York. 

Mr. Weeks. Do you think it would be wise to permit 
a bank like the Bank of Montreal, or our national banks, 
to do a trust-company business as part of their charter 
rights ? 

A. That is a question which has only arisen quite lately 
in my mind. The manager of an English bank was here 
the other day and he told me that they have got permis- 
sion to act as trustee, or executor, trustee for estates, 

167 



National Monetary Commission 

trustee for bonds, and in fact to transact the business we 
do through a trust company because we can not do it un- 
der our bank act. I should not think there would be any 
very great objection to it. 
By Mr. Vreeland : 

Q. If it can be done indirectly as you are doing it? 

A. The bank has nothing to do with it. It is done by 
another corporation very closely allied to the Bank of 
Montreal, with different shareholders and a separate 
board of directors. 

Q. I can not see any reason why if they can conduct it 
successfully indirectly they could not do it just as well 
directly under their own executive officers; the bank s 
large enough to employ men skilled in that line to attend 
to it? 

A. Yes. 

By Mr. BonyngE: 

Q. How much of your deposits bearing interest repre- 
sents savings accounts and how much time deposits, 
approximately, can you tell us? 

A. I could not without looking into it. In the directors' 
statement we do not separate them in that way. They 
are separated into deposits bearing interest and deposits 
not bearing interest. 

Q. For the savings accounts you issue a savings-bank 
book? 

A. Yes. 

Q. To the depositor? 

A. Yes. 



168 



Banking and Currency Systems 

Q. Do you follow the same rule as the other banks, in 
not segregating the savings deposits from the other de- 
posits but treating them all alike? 

A. Yes. 

Q. You have not any certain assets that you set aside 
for the savings accounts ? 

A. No; none whatever. I think our bank statement 
is already too voluminous, because it gives so many differ- 
ent items of information. If we gave a short statement 
as they do in England, so many deposits, so many dis- 
counts and our reserves, it would serve all practical pur- 
poses. They were carried away, at our last revision of the 
bank act, in drawing up the form of statement, and I do not 
know whether we can get it reduced now. It gives a great 
deal of information that is practically of no service, and it 
is very difficult sometimes for a general manager, with the 
best intentions in the world, to make a correct statement 
in each column, because he is uncertain what column to use. 
What one wants to know is the liability of the bank and 
the available assets. 

By Mr. Weeks: 

Q. Do you think it wise for your banks to invest the 
savings deposits as other deposits are invested? 

A. Suppose a bank fails, we can not keep the savings 
deposits separate from the others. 

Q. You do not, but you might? 

A. We could not. Each is a liability of the bank. 

Q. Under your laws? 

A. Yes; unless we alter our laws. There is a bank 
that says all its savings-bank assets or deposits are invested 



169 



National Monetary Commission 

in first-class securities, or Dominion loans, but that is 
nonsense, because if the bank stopped payment it could 
not apply those to the savings bank. They would have 
to go to the general assets of the bank. It is a catch 
with the public. 

By Mr. VREEivAND: 

Q. Under your law, there are no government examina- 
tions of banks? 

A. No. 

Q. What examinations do you have of your banks; for 
instance, the Bank of Montreal, what is your system of 
examinations ? 

A. We have a regular staff of inspectors. 

Q. Who are on the road constantly? 

A. Yes; the rule is generally two weeks out and two 
weeks in, and every one of the branches has to be in- 
spected once every year. 

Q. What system do you have in your head office here; 
is it treated the same as any other branch? And what 
about your city branches here? 

A. The branches in Montreal are inspected by the in- 
spectors, but the loans are not specially reported on 
because they are directly under my own eye. The head 
office is inspected by the directors. 

Q. In what form do they inspect it? 

A. The board of directors takes our balance sheet at 
the end of the year and compares it with our head-office 
books. 

Q. What means have you for the prevention of defal- 
cation in your clerical force? 



170 



Banking and Currency Systems 

A. In the head office there is no chance of defalcation. 
They deal entirely with figures. They do not handle any 
securities or cash. 

By Mr. Weeks: 

Q. Do the directors ever go through the securities or 
notes physically and examine them and count them? 

A. No. 

Q. Or anything of that sort? 

A. No. 

Q. Is a report made to the directors? 

A. The report of the inspectors? 

Q. Yes. 

A. They make a report to me as general manager, 
and I report it to the directors. The inspector reports on 
the state of the various accounts, and he generally reports 
on the country in the vicinity of the branch and what the 
business and agricultural prospects are. 

Q. Do you think it would be of advantage from your 
standpoint if you had a public inspection conducted by 
the government? 

A. I do not see how the government could conduct such 
an inspection. It would be almost impossible to get a 
staff to do what we do. To get a proper inspection you 
would have to have all the branches inspected simulta- 
neously, so that they could not make any changes among 
themselves. 

Q. Do you think such an inspection could be confined 
to the main offices with any advantage? 

A. I do not think so. 



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National Monetary Commission 

By Mr. VrEELANd: 

Q. Have you increased the capital stock of your bank, 
say, since 1900? 

A. Yes. 

Q. The surplus has been increased? 

A. The surplus is being increased steadily. We have 
increased the capital from time to time as necessity re- 
quired. In the year 18 19 the capital was increased to 
$650,000, and in the following year to $750,000. In 
1829 the capital was $850,000; in 1841, $2,000,000; in 
1845, $3,000,000; in 1855, $4,000,000; in i860, $6,000,000; 
in 1873, $12,000,000; in 1903, $14,000,000; in 1905, 
$14,400,000. 

Q. Have you established a considerable number of new 
branches during the last ten years? 

A. Yes. 

Q. In the West? 

A. We are adding all the time to our branches in all 
parts of the Dominion. 

Q. Your cash deposits are mainly kept, I suppose, at 
the head office and sent wherever needed? 

A. The cash? 

Q. The cash beyond the amount of till money that 
they need. 

A. We distribute it as much as possible. We have 
certain centers, so if there is any trouble at any branch 
we can supply that branch within twenty-four hours. 
Some of our branches are seven or eight days' travel away 
from the head office. 



172 



Banking and Currency Systems 

By Mr. VrEELANd: 

Q. These reports that come in are all boiled down, 
collected together, and then they go to the general man- 
ager? 

A. This report will probably be examined by two men 
before it comes to me. 

Q. Will this individual report come to you as it is? 

A. Yes; it will be examined by them and then I go 
over it and approve. If there are any accounts weak we 
write about them, or inquire into them, and the report 
then is submitted to the directors. In that way we have 
our finger on the whole country. That is what makes 
banking somewhat more interesting in Canada than in 
the States. 

Q. What authority do you give to the managers of 
your various branches about loans? I suppose you give 
them a limited authority without consulting your head 
office? 

A. Yes; their conduct of business is regulated on cer- 
tain lines, and a certain latitude is allowed to managers. 
If they do not produce good results we can change them 
and put someone else in. 

Mr. Weeks. Do you have any cases of dishonesty? 

A. Very few. The claims on the guaranty company 
are very, very few, extending over quite a large number 
of years. 

Mr. Bonynge. Your officials are all bonded? 

A. All bonded. We bond every official to the extent 
of $2,000. We bond them ourselves in addition, accord- 
ing to the position each is in. One man handling a large 



173 



National Monetary Commission 

amount of cash would be bonded for $10,000 or $15,000, 
and the premium on that would be set aside to a fund, 
and that fund is growing steadily. It is quite a large 
fund. 

By Mr. Weeks : 

Q. How many employes has the bank? 

A. About 1,300. 

Q. Are they all bonded? 

A. All bonded; every one. Our staff is growing 
steadily, because every branch opened means three more 
clerks, even for a small branch. 

By Mr. Vreeland: 

Q. Rates of discount in the various parts of Canada in 
your branches, I suppose, differ somewhat according to 
the sort of business presented? 

A. Yes. 

Q. More risk in one part than another? 

A. There is not only more risk in certain parts of the 
country, but the cost of doing business there is very much 
in excess of what it is in other places. We have to allow 
all our men when they leave for the West extra allowances, 
and that helps to make business there more expensive. 

A. Are the rates of discount made larger in these sec- 
tions, or are they uniform? 

A. Made larger. 

Q. In the West. 

A. Yes ; they are a trifle larger in parts of the West than 
they are in the East. 



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Banking and Currency Systems 

By Mr. BonyngE : 

Q. Who fixes the rate of discount, does the head office 
or the branch office ? 

A. The head office. 

Q. Is any change made in the rate without consulting 
the head office? 

A. No; they can put it up as much as they wish but 
they can not put it down. 

Q. They can raise it? 

A. They can raise it. 

Mr. Weeks. Suppose money conditions were strained 
and you did not wish to make any new commitments out- 
side of those which the bank has to make to its own custo- 
mers in Montreal, would you instruct your managers all 
over the country to refrain from any new commitments 
because the local conditions demanded it? 

A. Yes; we would in large places. We do not disturb 
small places. In a big center like Winnipeg, or Toronto, 
or Vancouver, or Halifax, we would instruct them to keep 
their business well in hand and not make any further com- 
mitments without consulting us, but it is no use interfer- 
ing in a small place. If you called in the loans in the 
smaller towns you couldn't get them. 
By Mr. VrEELANd: 

Q. They would not understand it? 

A. No. 

Q. Rates of interest are pretty uniform throughout the 
country? 

A. Yes ; fairly uniform. 



17s 



National Monetary C ommis s to 



n 



Q. About 3 per cent seems to be the average amount 
paid? 

A. For deposits ? 

Q. Yes. 

A. Yes. 

Q. Rates of interest on deposits ? 

A. Yes; 3 per cent is the maximum. 

Q. Banks adhere to that pretty closely? 

A. Pretty closely. 

Q. Do not your trust companies pay more than the 
banks? 

A. The Royal Trust Company does not take deposits 
in the banking sense. It takes deposits of a certain class 
but they are not subject to check. 

Q. Along what lines do your banks compete in an en- 
deavor to get business, from the reputation of the managers 
and the reputation of the bank ? Do they offer more favor- 
able terms upon exchange, or upon loans, or pursue those 
plans of obtaining new business ? 

A. Sometimes a concession is made for the purpose of 
obtaining an account, probably a lower rate of discount is 
granted. 

Q. You have then sharp competition? 

A. Yes. 

Mr. Weeks. One of our methods is in paying so much 
interest on a certain part of a deposit, a free balance, 
or something of that sort; with your uniform rate of 
interest that is impossible. 

A. We have the same arrangement. Very often a 
company or individual wishes to have his checks made 



176 



Banking and Currency Systems 

payable at par in different provinces, wherever we have an 
agency, and in order to get some profit out of that conces- 
sion we make him keep so much at his credit free of interest. 

Mr. Bonynge. In the case of an ordinary depositor 
with an account with the bank at Montreal and desiring 
to make a payment at Vancouver, would you charge him 
for the draft? 

A Yes; charge him a commission for it. That is a 
proper and legitimate part of the business of the bank. 
By Mr. VrEELANd: 

Q. What amount of deposits would you consider as 
justifying the opening of a branch, Sir Edward? 

A. That depends. In a country like the West, which 
is growing all the time, we have to take a chance of not 
doing any business for a year. 

Q. Prospects would also enter into it largely? 

A. Yes; we have just issued instructions to open at a 
place where there will not be any deposits at all, but the 
place is a good point; it is on the bank of a river and a 
divisional point on a railway. 

Q. What amount of deposits in a branch would you 
consider, from the standpoint of the profit, justified 
establishing it? 

A. That is a very difficult question to answer, because 
a minor branch or subagency might be useful in other 
ways than securing deposits. Where we open a subagency 
out in a manufacturing district, that is done very often 
to protect our business at the head office, because other- 
wise the different manufacturing concerns might be mak- 
ing banking arrangements elsewhere, and we give them 

22561 — 10 12 177 



National Monetary Commission 

the convenience of paying their checks close at hand. In 
a country place, for a country branch, anything from 
$350,000 upward. 

Q. There is no implied understanding as to interest, 
discounts, rates, and loans among the banks? 

A. None at all; no. 

Q. How about the interest on deposits? 

A. It is an agreement among ourselves that we shall 
not pay more than 3 per cent. 

Q. It is not considered good banking to pay more than 
that? 

A. No; 3 per cent half-yearly. 

Q. The statements indicate that banks generally, tak- 
ing them all together, pay interest on about two-thirds of 
their deposits; your bank runs less? 

A. Yes; I dare say they do. 

Q. About two-thirds seems to be the average according 
to the condensed report? 

A. Yes. 

Q. The checking system has come to be very generally 
used in Canada, the system of checking upon accounts? 

A. Yes. 

Q. How about your large manufacturing corporations 
here and the railroads ; how are their pay rolls paid, by 
cash or by check? 

A. Check, chiefly. That is, at any rate, the practice 
of railroads. 

Q. All the large manufacturing concerns in the city 
here, do they pay usually by check or cash? 



178 



Banking and Currency Systems 

A. They generally get the money. We consider that 
one of the profits in connection with the account is the 
circulation that it gives us. 

Mr. Weeks. Does the government pay checks or cash? 

A. They pay checks. 
By Mr. Vreeland: 

Q. There is nothing in the Dominion law, as I under- 
stand, relating to reserves? 

A. Nothing. 

Q. That is entirely 

A. Subject to the judgment of each general manager. 

Q. Under the laws, also, does the Banking Association 
endeavor, as a matter of good banking, to keep a mini- 
mum amount of cash reserves among the banks ? 

A. Yes; there is an arrangement among ourselves that 
a bank will keep a minimum of 8 per cent in actual cash 
and 7 per cent in readily available securities, making 15 
per cent in all, but there is no law about it. 

By Mr. Weeks : 

Q. Do you consider that sufficient, taking everything 
into consideration? 

A. Yes. 

Q. There is always a great difference of opinion among 
bankers about the necessity for keeping a reserve and 
the method of handling a reserve? 

A. Yes; there is always a difference of opinion. 
By Mr. VrEELANd: 

Q. To what extent have there been runs on banks in 
years gone by in Canada? Were there runs upon the 
Ontario Bank? 

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National Monetary Commission 

A. Yes; and the Sovereign Bank. 

Q. At their head offices and branches also? 

A. Yes. 

By Mr. BonyngK: 

Q. At that time did it cause runs on the other banks ? 

A. No. 

Q. No runs on any of the other banks? 

A. No; the run on the Ontario Bank hardly commenced 
when we stopped it by taking the bank over and putting 
up a sign "Bank of Montreal" over the "Ontario Bank," 
and that stopped the run. 

Mr. VrEEland. Any amount they wanted you paid? 

A. Yes. 

Mr. Weeks. Was that a quiet run? 

A. Yes. 

By Mr. VrEELANd: 

Q. I notice in the case of the Sovereign and Ontario 
they were taken over and liquidated by the chartered 
banks or a combination of them? 

A. In the case of the Ontario we took the bank over 
ourselves and liquidated it ourselves. In the case of the 
Sovereign Bank there was a partition of all the offices in 
the districts, and each bank looked after its own district. 

Q. Would you say that has become the policy of the 
chartered banks in case of a weak bank, or one that is 
about to suspend? 

A. No. 

Q. It is left with each individual case to deal with it as 
you see fit. 



1 80 



Banking and Currency Systems 

A. Yes ; in the case of the Ontario Bank and Sovereign 
Bank it was a very ticklish time, and if that run had been 
allowed to continue it might have spread, and it was done 
partially in self-defense. 

Q. That was when we were having our panic across the 
border in 1907? 

A. Yes. 

Q. But it is the practice of your chartered banks, is it 
not, Sir Edward, to support each other where you con- 
sider them solvent? 

A. There is no regulation to that effect, but if a bank 
should come to us in trouble and show us reasons for doing 
it, we should help it over. 

By Mr. BonyngE:. 

Q. Much the same as our clearing houses? 

A. Yes; probably the same as the clearing house in 
New York. In the panic of 1907-8, during the crisis in 
the United States, two or three banks came to us for heip, 
but it was not generally known. They were perfectly 
solvent and perfectly good and only needed temporary 
assistance at the time. 

Q. You know our clearing houses do that quite fre- 
quently? 

A. Yes; we are members of the clearing house in 
Chicago. 

By Mr. VrEELANd: 

Q. You say that your cash reserves in proportion to 
your deposits are increasing, say, in the last ten years ? 

A. Yes. 

Q. That is the general policy of the banks? 

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National Monetary Commission 

A. Yes. Just at present I imagine they are about as 
strong as they ever have been. 
By Mr. BonyngE: 

Q. During the panic of 1907 in the United States, did 
you call your loans in in the United States, or did you 
loan money then? 

A. We kept our balance pretty even all the time. 

Q. Your money was largely on call in the United States 
at that time? 

A. Yes. 

Q. And you got higher rates of interest for the money 
that was out? 

A. Yes. 

By Mr. Vreeland: 

Q. The note issues of banks, I think, we have been well 
over. In the end all of the banks are behind them? 

A. Practically. 

Q. The notes are issued and the expenses paid by the 
individual banks? 

A. Yes. 

Q. Of note issues? 

A. Yes. 

Mr. Bonynge. There is double liability of stockholders 
also? 

A. Yes. 

By Mr. Vreeland: 

Q. And also stockholders would be liable 

A. Not liable beyond the double liability. 

Q. They would be liable to the amount of the subscribed 
capital that had not been paid in? 

A. Yes; anything unpaid. 

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Banking and Currency Systems 

By Mr. BonyngE: 

Q. If you had an authorized capital of $20,000,000 and 
had issued stock for $14,000,000 there would be no liability 
on the excess? 

A. No; suppose the shareholders had not paid in 
full their calls on account of stock they would be liable 
for the balance, but not for the authorized issue. 

Q. Not for the difference between the authorized issue 
and what was actually outstanding? 

A. No. 

Mr. Weeks. Do you think the possibility of fraud in 
issuing circulation is as carefully guarded as it can be? 

A. Very nearly. We have never found in any bank 
that came to grief or got into trouble the slightest error 
in circulation. The only improvement that could be 
made would be if the banks made their own notes. At 
present it is done by the American Bank Note Company, 
and by the British- American Bank Note Company, and 
some are made in England, so we can not follow them 
there. 

Mr. BonyngE. You think it would be better if the 
notes were made by the Dominion government? 

A. Or made by the banks. We have several times 
talked about having a note bureau of our own in the 
Bankers' Association which would manufacture the notes 
and distribute them to the banks. 
By Mr. VrEELAND : 

Q. Superintended by the officers of the association? 

A. Yes; so that the note would be under our control 
from the birth until the death. 



183 



National Monetary Commission 

Q. To what extent can you get reports from these 
different bank-note companies as to their shipments 
to banks? 

A. They are obliged when they deliver notes to a 
bank to notify the association. If a bank-note company 
failed to do that the association would not let the banks 
get their notes there. 

By Mr. WEEKS : ^ 

Q. Do you keep a record of your individual notes? 

A. We do. It is not generally done in banks. 

Q. I should imagine that about the only chance of 
an overissue of notes would be by some bank which was 
in pretty hard straits ? 

A. Yes; there is the chance in a case of a run that 
they would keep paying out their notes, and an over- 
issue might occur in that way. 

Mr. BonyngE. Might it also occur at the branches 
before they had notice? 

A. It might, possibly. 
By Mr. Vreei^and: 

Q. It would occur when the bank is pretty well up to 
its Hmit of note issue? 

A. Yes ; but there is not the same danger now, because 
we have a new regulation. 

Q. The law of 1908? 

A. Yes. 

Q. Has that been used by any of the banks? 

A. Yes. 

Q. It was used last year? 

A. We had notice within two days of two banks that 
wanted to use it. 

184 



Banking and C urr ency Systems 

By Mr. Bonynge : 

Q. This year? 

A. This year. 

Q. Was this regulation passed at the suggestion of 
the bankers? 

A. It was under discussion at one time. 

Q. Did the Canadian Bankers' Association take any 
action before the passage of the bill, either in its favor 
or against it? 

A. No; but they had no objection to it. On the other 
hand, I do not think they made any application for it. 

Q. Did it originate with the Canadian Bankers' Associa- 
tion? 

A. It was the result of a discussion between some of the 
bankers and the minister. 

Mr. Weeks. Do you see any objection to it now if it is 
used strictly for emergency purposes? 

A. I do not see any great objection to it. It is only 
used for four months during the grain season, and the 
grain movements are over by the 31st of January. By 
that time most of the grain is sold. 
By Mr. VreEiand: 

Q. I should think that it might be of advantage to the 
banks of smaller capital? 

A. Yes. 

Q. To those having a very small issue and which run 
pretty close to the limit? 

A. Yes. 

Q. And which have quite a good many branches? 

A. Yes. 

185 



National Monetary Commission 

Q. And not as the Bank of Montreal, with a large or 
much larger capital and consequently a larger note issue? 

A. Yes; the pressure for circulation has been largely 
relieved by the establishment of smaller branches through- 
out the country, causing notes to come back from circula- 
tion more promptly in consequence. 

Q. What is the pocket money of the people generally, 
Dominion and bank notes? 

A. Yes. 

Q. And silver? 

A. And silver. 

Q. Very little gold is circulated ? 

A. No gold is ever carried. 
By Mr. Bonynge: 

Q. I suppose your method of circulation is a source of 
profit to the banks? 

A. To some banks it is. It is not of much profit to a 
bank like this, because we have to carry such large re- 
serves, and we expend a great deal of money in keeping 
our circulation as clean as possible. 

Q. What do you estimate the expense of keeping up 
the circulation with the very frequent redemption which 
you have; would i per cent cover it? 

A. It is not far from it. 

Q. Your redemption is very frequent? 

A. Yes; the life of one of our notes averages three or 
four years. 

Q. Notes that are paid off and which are in good condi- 
tion are put out again? 

A. Yes. 

186 



Banking- and Currency Systems 

Q. As soon as they are in bad condition they are de- 
stroyed? 

A. Yes ; and we try to keep our circulation clean. 

Q. Would all of your circulation be payable at any one 
of your branches if presented? 

A. Yes; we are not obliged to pay it at any branch, but 
we do. 

Q. I mean legally? 

A. No; but a bank must receive in payment its own 
notes at par at any of its offices whether or not they are 
payable there. 

Q. Under the law are you obliged to pay or redeem 
notes at the branches? 

A. Each bank has to establish agencies for the redemp- 
tion and payment of its notes at certain points designated 
by the bank act. 

By Mr. BonyngE: 

Q. All of the notes of a bank that might be presented 
at any one of its redemption points would have to be 
redeemed there? 

A. Yes. 

Q. Even if all the outstanding notes of the bank were 
presented at that redemption point they would have to 
be redeemed? 

A. Yes. 

By Mr. VreELANd: 

Q. What are the functions of your clearing house; are 
they anything beyond what would be indicated by the 
name, the balancing of accounts as to checks and notes? 

A. Practically that is all. 

187 



National Monetary Commission 

Q. Is there any agitation in Canada for any changes 
in your banking laws by any class of your people, or by 
bankers ? 

A. Not by any particular class. There are always a 
certain number of persons who think they know more 
about your business than you do yourself, and who have 
all sorts of suggestions to make. I have not heard of 
any such agitation. 

Q. Banks have no taxes so far as the general govern- 
ment is concerned? 

A. No. 

Q. You have your provincial, city, municipal, and 
school taxes? 

A. Yes. 

Q. All the provincial and municipal taxes, but nothing 
from the general government? 

A. No; not from the Dominion government. 

Q. In what form does the provincial government tax 
you? 

A. Chiefly on capital. It is a very unfair tax, because 
we have always urged that they should tax us on the 
amount of capital used in their province, but they say 
it is a much simpler matter to tax as they do. We have, 
therefore, to pay much more proportionately than any 
other bank. 

Q. What rate does the Province of Quebec charge upon 
bank capital? 

A. I do not remember. It is a graded tax. 



188 



Banking and Currency Systems 

Q. You mean graded by starting in with $1,000,000 
capital? 

A. Yes. 

Q. And so on? 

A. Yes. 

By Mr. Weeks: 

Q. Does the general manager determine where circu- 
lation shall be distributed, how much shall be at each 
branch at any specified time? 

A. No; that is regulated by the branches themselves. 

Q. In accordance with their needs? 

A. Yes; they apply for circulation as they require it. 

Q. How frequently do your branches report to the main 
office the circulation which they issue? 

A. We receive regular reports of the amount they have 
on hand; daily reports from the leading branches and 
twice a week from the smaller branches. That is our 
own personal arrangement. 

Q. I was led to ask that question, thinking, perhaps, 
unless reports were made very frequently a bank that 
was near its limit might, without any intent, have out 
an excess of circulation. 

A. When we get near our limit we are kept informed by 
telegraph. 



189 



National Monetary C ommis s to 



n 



Interview with H. V. Meredith, assistant general manager of the Bank of 
Montreal, and director of the Royal Trust Company. 

By Mr. Vreeland: 

Q. The trust company publishes a statement? 

A. We prepare statements and furnish them to the 
governments of the various provinces, but we do not give 
them to the general public. We act under a provincial 
charter in the different provinces where we are located, and 
we have to give a statement to the government of each 
province, and in some of the provinces they are much 
more particular than in others. In some of them they ask 
us for a deposit as security for acting as trustees. 

Q. Ask for a deposit with the provincial government? 

A. Ask for a deposit with the provincial government. 

Q. In cash? 

A. In cash, yes; or securities. 

Q. Do they invest it in any way so you get interest on 
it, or is that dead money? 

A. In the province of New Brunswick they insisted on 
our buying provincial bonds and depositing them. 

Q. So that you get interest on the bonds? 

A. Yes. 

Q. In the other provinces don't you get anything out 
of the deposits ? 

A. They take securities, on which we collect the interest. 

Q. Does the Dominion government authorize and give 
charters for trust companies? 

A. Yes; but we get local charters too, as Dominion 
charters are subject to provincial trust companies' acts. 

Q. Do all the provinces give charters for the trust com- 
panies ? 

190 



Banking and Currency Systems 

A. There is no reason why they should not. They have 
all got the power. 

Q. That does not give you authority to act outside of 
the provinces ? 

A. No, that would be local. For this company we had 
originally a charter for the Province of Quebec, and when 
we entered the other provinces we had to get a charter 
from each of them or register under each of their provincial 
trust-companies acts. We do business in all the provinces. 

Q. You have to get authority from each province to 
enable you to do business? 

A. Yes. 

Q. And you are required to make a deposit or give 
security you say ? 

A. We give a deposit, if asked for, as security for our 
acting as trustees, executors, committee, guardian to 
persons and to property. Some of the provinces do not 
exact security. 

Q. You have an authorized capital in your charter? 

A. Yes. 

Q. You have the right to increase if from time to time 
if you wish? 

A. Yes. 

Q. How large a capital do you have? 

A. Our capital now is $5,000,000 authorized, and 
$1,000,000 fully paid up. 

Q. You do not receive deposits in the ordinary way? 

A. We have authority but we do not receive them. 

Q. You have authority to receive deposits? 

A. Yes, most of the trust companies have that au- 
thority. 

191 



National Monetary C ommis s io 



n 






Q. Do you have authority to buy commercial paper? 

A. No, that is forbidden; or bills of exchange. 

Q. What is the line of investment that you are author- 
ized to make? 

A. We are not restricted as to investments. Anything 
that we like except commercial paper and bills of exchange 
generally. 

Q. As a matter of fact, how do you invest your money? 

A. We buy securities, largely bonds. 

Q. Do you invest it ever in real-estate mortgages? 

A. Yes; we have invested a considerable amount 
through our agencies in Winnipeg and the Northwest. 

Q. Do you act as trustees and executors? 

A. Yes. 

Q. Administrators? 

A. Yes. 

Q. All of those trust functions? 

A. Yes ; that is how we make our money. We are un- 
like trust companies of the United States ; as I understand 
it, they make their money out of deposits and the invest- 
ment of them. In a majority of United States trust com- 
panies there is very little distinction between trust com- 
panies and banks, except trust companies have larger 
powers. The feeling is here to disassociate trust com- 
panies from banks altogether. We do not take any de- 
posits from the public except for investment or something 
of that kind. 

Q. The deposits that you take from the public for in- 
vestment are payable how? That is, are they payable on 
demand or at some specified time? 



192 



Banking and Currency Systems 

A. We do not take demand deposits. The way this 
money comes to our hands is principally from estates, and 
the investments are the property of the estates, and the 
moneys are only repayable when the investments can be 
realized. 

Mr. BonyngE. Do you exercise your discretion in what 
securities you are to invest these trust funds, or are you 
directed by the party? 

A. We follow the instructions contained in the will or 
other deeds governing the investment. 

Mr. Vreeland. You receive a commission for such in- 
vestments ? 

A. Yes. 

By Mr. BonyngE: 

Q. Do you have an officer, a member of the trust com- 
pany, who is a member of the exchange? 

A. No; the trust company, as we understand it, and as 
we wish it to be, can not be a member of our stock ex- 
change. Under our banking laws there are many trans- 
actions which a bank can not take up. If a business 
comes in that the Bank of Montreal could not take, we 
would turn it over to the trust company, and thereby we 
keep the connection that we might otherwise lose. 

Q. Do you pay a larger rate of interest than the banks ? 

A. On deposits? 

Q. Yes. 

A. No; we allow bank rates on moneys in our hands 
awaiting investment. Our great idea is not to allow the 
trust companies in Canada to be banking concerns in any 
shape or form. 

22561 — 10 13 193 



National Monetary Commission 

Q. Upon what other deposits do you pay interest ex- 
cepting those that are left with you for investment? 

A. That is all. It occasionally happens that companies 
which are accumulating funds for dividends would place 
them with us to invest, and in that case we make an 
arrangement by which we manage the investment for a 
certain percentage, and in that way they get more than 3 
per cent, if it can be invested to yield more. 

Q. Is the practice becoming to any extent general here 
by which men make wills appointing trust companies as 
executors ? 

A. Yes. 

Q. And are they appointed as administrators by the 
courts to any extent? 

A. Most people now appoint trust companies. They 
had a prejudice here under the French law, and for a good 
many years we could not get them to look at anything 
but private trustees; now they are appointing trust com- 
panies very largely. If they go to the court, the court 
will appoint a trust company. They will only appoint 
companies that they are satisfied are absolutely safe. 

Q. The tendency is rather the same as in the States 
toward trust companies acting in fiduciary capacities? 

A. Largely; yes. 

Q. Trust companies being appointed? 

A. Yes. 

Q. Do you issue debentures? 

A. No. 

Mr. Vrkeland. Do you engage in the bonding business 
at all, giving officers' fidelity guaranty bonds? 



194 



Banking and Currency Systems 

A. No; there are separate companies here for doing 
that business. 

By Mr. HubbEU.: • 

Q. Do you guarantee any loans at all? 

A. We are not very anxious to give guaranties. We 
rather restrict those. We have guaranteed mortgages up 
in the West for people that wanted the Royal Trust 
Company's guaranty. We do not guarantee more than 
4 per cent as a rule. We might go 4^ per cent. 

Q. You make the difference between the rate guar- 
anteed and the rate at which the loan is made? 

A. Yes. 

Mr. VREEivAND. How many regular trust companies are 
there in the city? 

A. I think there are five now. 

Mr. Hubbei.Iv. Are you limited as to the amount of 
debentures that you may issue, or the amount of guar- 
anties that you may perform? 

A. We do not issue debentures, and there is no legal 
limit as to our guaranties. 
By Mr. BonyngE: 

Q. Are you limited as to the amount of money that 
you may receive on deposit? 

A. No; but we do not receive ordinary deposits. 

Q. You differ in that respect from the mortgage com- 
panies? 

A. Yes. 

Q. Are you organized under a general law of the 
province, or is a special charter in each case furnished 
to a trust company? 



195 



National Monetary C o mm is s to 



n 



A. There is a general law for trust companies. .We 
have a special charter besides. 

Q„ There is a general law? 

A. There is an act in all the provinces. They are pro- 
posing to enact a new one for the Province of Quebec. 
Trust companies get special charters from the legislatures 
in most cases. 

By Mr. Hubbell: 

Q. You have a safe-deposit department in connection 
with the trust company? 

A. We have in all our large offices; yes. 

Q. You have branches? 

A. Just the same as a bank. It is all managed from 
the central office here. 
By Mr Bonynge : 

Q. How do you operate your safety-deposit boxes? — 
as we do in the United States, or do the depositors have 
to notify you what they put in their boxes? 

A. No; the same as you have. 

Q. Each depositor has full control over the situation? 

A. We have a master key and the depositor has a 
key. Our master key does not open the box, but with- 
out it the depositor can not get in. 

Q. And the depositor can put in such securities as he 
pleases without notifying you? 

A. Yes. 

Q. Without any notification ? 

A. Yes; we work just the same as you do in that re- 
spect. 

Q. You do not assume any responsibility for the se- 
curities except the safe-keeping of whatever is in there? 

196 



Banking and Curr ency Systems 

A. No. 

Q. If any of your own people were to extract any- 
thing from the box, you would certainly be legally liable 
for it? 

A. I think we probably would, yes; although we gen- 
erally disclaim that liability, but we do not have a key 
to enable us to get in. 

Mr. HuBBEivL. You have restrictions as to your stock- 
holdings, don't you? They are not connected with the 
Bank of Montreal? 

A. The connection with the Bank of Montreal is under 
a by-law of the company which provides that a majority 
of the directors of the trust company shall also be directors 
of the Bank of Montreal, if there are such persons qualified 
and willing to act. 

Mr. VrEEIvAND. Nearly the same people are in both? 

A. Yes; but we have people outside on the board, as 
well as the bank directors. 

Mr. HubbELIv. The stock transfers are controlled in- 
herently by the trust company? 

A. The stock transfers are controlled by us. 

Mr. VrEE^and. Do you know how many charters 
there are issued in the Province of Quebec for trust com- 
panies? 

A. I think there are quite a number in the Province of 
Quebec. 

By Mr. BonyngE: 

Q. Do you deposit in the Bank of Montreal, pending 
investment, money sent to you for investment? 

A. Yes. 

Q. You do not keep the cash that is deposited with you? 



197 



National Monetary C ommis s io 



n 



A. No; we keep all the bonds and the securities. 

Q. I mean the funds. 

A. They are deposited in the Bank of Montreal to our 
credit. 

Mr. Hubbell. Isn't each trust fund that is intrusted 
to you invested separately and accounted for? 

A. Yes. 

Mr. Bonynge. And pending the investment of the 
funds you deposit them with the Bank of Montreal ? 

A. Yes. 

By Mr. Hubbeix: 

Q. Does the deposit of these funds go into a general 
account? 

A. So far as the trust company is concerned they have 
a general account with the Bank of Montreal and a trust- 
fund account in which trust moneys are deposited. 

Q. Supposing a man dies and $10,000 is deposited with 
the trust company. This is invested in specific securities ? 

A. Yes. 

Q. And these securities are only used in the payment 
of that deposit ? 

A. Yes. 

By Mr. Bonynge : 

Q. Are you limited at all by charter or by any law of 
the Province as to the character of securities in which 
you can invest trust funds? 

A. There is a provincial law that covers that, and it is 
a very strict one. Principally government and munic- 
ipal securities and mortgages in the Province of Quebec 
up to 60 per cent of the assessed valuation. 



198 



Banking and Currency Systems 

Q. And does the provincial law designate the particular 
railroad bonds, for instance, in which you can invest 
trust funds? 

A. We could not invest trust funds in railroad bonds 
unless specifically authorized by the will or deed. 

Mr. Hubbeu.. You are subject to the same law that 
an individual trustee would be subjected to, so far as 
investing funds? 

A. Yes; there are what we call trustees' investments 
here, the same as there are in England. 

Mr. Bonynge. And they are limited to government and 
municipal securities, real estate, and mortgages on real 
estate ? 

A. Yes. 

By Mr. Hubbeu.: 

Q. Does the court have to approve that investment 
in any case ? 

A. If we are appointed by the court, do you mean? 

0. Yes. 

A. As long as we stick to the act, that is sufficient. 
Moneys deposited in court have to be invested with the 
court's approval. 

Mr. VREEivAND. Do you know how many mortgage 
banks that loan on real estate and issue debentures you 
have here in the city? 

A. We have very few. That is something that they 
have very largely in the Province of Ontario and some of 
the other provinces. 

Mr. Bonynge. You do not have any savings accounts 
in the trust company, do you? 



199 



National Monetary Commission 

A. No; loan companies do a large business in the 
Province of Ontario in that way. They take deposits 
largely there, and they also issue debentures and sell 
them, in Scotland chiefly, and invest the money in mort- 
gages here. 

By Mr. VrEELAND : 

Q. Their deposits are limited to the amount of their 
capital? 

A. Their deposits to the amount of their capital ? 

Q. Yes. The president of quite a large concern there 
told us that the deposits they could receive were limited 
to the amount of their capital. 

By Mr. Hubbeix: 

Q. Do you have your board of directors or a special 
committee approve of the investment, or is that simply 
a matter that the manager has in charge? 

A. We have an executive committee and they report. 

Q. After the act? 

A. Yes; after the act; we get the action of the execu- 
tive committee confirmed at meetings of the board, at 
which all the business that is being done is reported. 

Mr. BonyngE. You do not do any underwriting for 
corporations, do you? 

A. No; that is not our business. It would be the 
exception to do anything of that kind. 

Mr. Vreeland. What would you think of the propriety 
of permitting banks like the Bank of Montreal to do trust- 
company business? 

A. Well, I think it would be a very dangerous thing for 
any of the chartered banks to go into trust-company 



Banking and Currency Systems 

business, and not to have their assets in liquid shape all 
the time. 

By Mr. Bonynge: 

Q. If you segregated the trust funds and the savings 
funds from the commercial deposits and had a provincial 
law by which the trust funds were to be invested only in 
certain securities and the savings funds in certain other 
securities, and kept them absolutely distinct from your 
commercial deposits, wouldn't that overcome your objec- 
tion, so that the depositors of the trust funds would look 
to the particular security in which their funds were in- 
vested and the commercial depositors would have no 
claim upon those securities? 

A. Then how would you realize, in time of panic, on 
some of those securities? 

Q. You wouldn't have to realize on the trust funds. 

A. You mean the securities would be held specially for 
that business ? 

Q. Yes ; the trust funds and the commercial department 
would be separate and distinct. 

A. Yes; that could be done, but it would be a business 
distinct and separate from ordinary banking business, 
and it would be unusual in this country. 

Q. It would be something new? 

A. Yes; in Canada. 

Q. But it would be feasible, would it not? 

A. I think it would be feasible, but not desirable. 
By Mr. Vreei,and: 

Q. Of course, that would carry with it a right to notice, 
the same as our savings banks. In our State they are 
obliged to invest along trustee lines. 



National Monetary Commission 

A. Yes. 

Q. They can invest in certain railroad bonds specified 
in the statutes. The savings banks of the State of New 
York have very little cash on hand. 

A. Yes; we understand so. 

Q. It is invested along the lines which the law requires, 
but of course that carries with it the right to demand 
notice if they wish it? 

A. Yes; for savings deposits, we understand. 

Q. So, in times of excitement they can demand thirty or 
sixty days' notice? 

A. But would they demand notice? 

Q. Ordinarily, they would not demand it. 

A. No ; that would be a reflection on their credit at once, 
if they demanded notice, wouldn't it? 

Q. Except as they would be forced to do so as they 
were in 1907. 

A. Canadian banks did not need to do this in 1907. 

Q. In the State of New York the trustees of savings 
banks, as they can under the law, required notice of thirty 
or sixty days. 

A. Yes. 

Q. And tens of thousands of notices were given them 
by depositors saying at the expiration of that time they 
would withdraw their funds. At the expiration of that 
time more money was put in than was taken out. 

A. Yes. 

Q. Showing simply the excitement had passed. 

A. Yes 



THE BANQUE D'HOCHELAGA. 

Statement of , November 30, 1908. 
PROFIT AND LOSS ACCOUNT. 

CREDIT. 

Balance at credit profit and loss account, November 

30, 1907 $20,477.00 

Net profits for the year ending November 30, 1908, 
after deducting costs of management, interest ac- 
crued on deposits, and provisions for bad and 
doubtful debts __ 381,387.02 

DEBIT. 

Dividend paid March 1, 1908 50, 000. 00 

Dividend paid June 1, 1908 50, 000. 00 

Dividend paid September 1, 1908 50, 000. 00 

Dividend payable December 1, 1908 50, 000. 00 

Written off bank premises and fixtures 15,1 40. 86 

Carried to officers' pension fund 5, 000 . 00 

Carried to reserve fund 150,000.00 

Balance at credit profit and loss, November 30, 1908.- 31.723.16 



RESERVE FUND. 

Balance at credit November 30, 1907 $2,000,000.00 

Carried forward, November 30. 1908 150,000.00 

Balance at credit of reserve fund November 30, 1908 

GENERAL STATEMENT. 

LIABILITIES. 

Capital stock paid up $2, 500, 000. 00 

Reserve fund 2, 150,000.00 

Profit and loss 31,723.16 

Unclaimed dividends 1, 203. 65 

Dividend payable December 1, 1908 50, 000. 00 

Due to other banks in England and in foreign coun- 
tries 71, 055. 44 

Notes in circulation 2,058,762.00 

Deposits not bearing interest 3, 898, 349. 98 

Deposits bearing interest 9, 048, 989. 64 

Outstanding drafts drawn by agencies on head office 139,019.01 



$401, 864. 02 



401, 864. 02 



2, 150, 000. 00 



$4, 732,926. 81 



15, 216, 176. 07 
19. 949, 102. 88 



Specie 289, 924. 94 

Dominion notes 1, 495, 239. 00 

Notes and checks on other banks 1.525, 567. 44 

Due by other banks in Canada 193, 624. 39 

Due by other banks in England 52, 635. 82 

Due by other banks in foreign countries 1,117,361.46 

Consols, federal, and provincial governments, cities 

of New York and Montreal debentures 1, 507, 512. 95 

Other Canadian debentures 18, 475. 00 

Call loans on bonds and stocks 595, 761. 62 

Deposit with Dominion government for security of 

circulation 102, 996. 00 

Notes discounted and current $12, 702, 338. 87 

Overdue debts (loss provided for) 14, 002. 25 

Mortgages on properties sold by the bank 20, 592. 54 

Real estate 29, 178. 67 

Bank premises, office fixtures and other assets 283, 891. 93 



6, 899, 098. 62 



$13, 050, 004. 26 
19. 949. 102. S8 
J. A. Prender«ast, General Manager. 



203 



National Monetary Commission 

Interview with M. J. A. Prendergast, general manager of Banque 
d'Hochelaga. 

By Mr. VrEELANd: 

Q. What is the capital of your bank? 

A. $2,500,000. 

Q. And your surplus? 

A. $2,150,000. 

Q. What year were you chartered? How long has 
your bank been in existence ? 

A. 1874. 

Q. You came in under the Dominion law? 

A. Yes. 

Q. The act of 1871? 

A. Yes. 

Q. How many branches do you have? 

A. We have 33 branches. 

Q. How many branches do you have in the city? 

A. You call the city, I suppose, the suburbs? 

Q. Yes. 

A. In Montreal we have 12. 

Q. You are establishing branches now farther west — out 
in the grain fields? 

A. The farthest we have is Edmundson. 

Q. About the time of your last annual statement, as 
near as you can remember, what amount of cash reserve 
did you carry, or what per cent? 

A. Are you speaking of actual cash ? 

Q. Yes; I mean actual cash. 

A. That varies a great deal. So far as I remember, it 
would be a little over $1,100,000. We hold federal and 



204 



Banking and Curr ency Systems 

provincial debentures, and hold a block of the city of New 
York with our European correspondent, and against all 
these bonds we can check, either by cable or sight draft, or 
thirty or sixty days, by a special agreement with the bank. 
We consider these as part of the cash reserves. I do not 
include the million and some odd thousand dollars of actual 
cash. 

Q. What is the policy of the bank as to the amount, the 
percentage of actual cash, which you find it necessary to 
carry, or think it prudent to carry — as much as 10 or 8 
per cent? 

A. A good deal more than that. 

Q. To your deposits? 

A. A good deal more than that. 

Q. Of actual cash on hand? 

A. Yes, sir; you wouldn't take the amount against 
which we could check as part of the cash reserves, would 
you? 

Q. We should consider that a very near cash reserve, 
but not the actual cash in the safe ? 

A. No. 

Q. And yet of almost one value, but we- were dividing 
the account. 

A. We always keep at least 20 per cent in actual cash. 

Q. What amount in addition to that do you intend to 
carry? 

A. As immediately available? 

Q. With balances in New York and London? 

A. Oh, couple of millions more, sir. 

Q. What are your total deposits? 



205 



National Monetary Commission 

A. To-day they are, bearing and not bearing interest, 
about $13,000,000 — between $13,000,000 and $14,000,000. 

Q. That would bring your reserves of actual cash and 
cash immediately available up to something like 30 per 
cent? 

A. A little over that. 

Q. Do you try to keep as a secondary reserve any invest- 
ments in government or other bonds and securities? 

A. We keep about $1,500,000 in federals and provin- 
cials, British consols, and we hold a block of the city of 
New York bonds. 

Q. And that is under an arrangement against which 
you can check? 

A. And that is under an arrangement against which we 
can check. 

Q. So cash is more available? 

A. So cash is more available. 

Q. Do you have your money on call? 

A. No, sir; we hold on call little over $1,000,000 at the 
present time. 

Q. What amount have you invested in real estate for 
your own premises — yourself and branches? 

A. We have between $275,000 and $300,000 invested in 
our own premises. 

Q. That is what you charge in your statement? 

A. Yes, sir. 

Q. Really you must have considerably more than that, 
I suppose, actual value, selling value? 

A. We put it down at what it cost us. 



206 



Banking and Curr ency Systems 

Q. You follow the usual banking expression and charge 
off a portion of your real estate? 

A. Invariably. 

Q. As much as you can? 

A. And not only that, but deposits through exchange 
we reduce at least 10 per cent per annum. 

Q. Upon what proportion of your $13,000,000 of de- 
posits do you pay interest? 

A. About $11,000,000 — between $10,000,000 and 
$11,000,000. 

Q. Do you pay interest on current accounts subject to 
check? 

A. Very seldom. 

Q. Monthly balances? 

A. They are the exception. That is so invariably for 
minimum monthly balances. 

Q. What proportion of your $13,000,000 is upon time; 
that is, time notice required for withdrawal? 

A. As I said just now, interest -bearing accounts amount 
to a very small sum. 

Q. Then about all of your $1 1,000,000 would be subject 
to notice? 

A. Yes, sir. 

Q. To draw? 

A. Yes, sir; but it is against our practice to enforce the 
notice. 

Q. You can pay interest upon current accounts? 

A. We invariably pay whenever they present, although 
we have a right to pay according to the contract with the 
depositors. 



207 



National Monetary Commission 

Q. It is a very valuable right in case of great excite- 
ment? 

A. Or in case of need; yes, sir. 

Q. About what time do you have a right to require 
upon these interest accounts, thirty days? 

A. Yes, sir. 

Q. Or longer? 

A. Thirty days. 

Q. You publish only one statement a year? 

A. Only once a year; yes, sir. 
By Mr. Weeks : 

Q. Do you cater for any particular class of business, 
except for business generally in Canada? 

A. We do not cater for any special line of business. 
Our accounts are usually commercial. We are not big 
enough to go into large amounts for railways and things 
of that kind, railway constructions; we do not consider 
ourselves strong enough for that. We stick as much as 
possible to our commercial accounts. 

Q. Is there any method in Canada of distributing 
loans? Does one bank take a very large loan and give 
a piece of it to some other bank? 

A. We are not in the habit of doing so, and we were 
never asked by any other bank to do so. 

Mr. Knight. The banks are not allowed to divide 
accounts. 

Q. What we call a participation loan. You know in 
the United States we are limited in the amount we can 
loan to any one concern? 

A. Yes. 



208 



Banking and Currency Systems 

Q. For instance, a bank might be able to loan $400,000? 

A. Yes. 

Q. But it might be offered a loan of $1,000 000? 

A. I see. 

Q. It would take that and give other banks some 
portion of it. 

A. That is a practice that is not adopted in this country, 
not to my knowledge anyhow. We have no limit. Pru- 
dence must dictate the limit to the bankers themselves. 
By Mr. VrEELANd: 

Q. If you could have the banking laws made just to 
suit you, what changes would you make? 

A. There is one change I would suggest. As you are 
aware, the federal government does not tax our capital. 
I had the pleasure of meeting the association of the 
State of New York some three and one-half years ago 
at Behoff, near Cleveland, and the statement that the 
federal government, from which we get our powers, 
does not tax our capital, was received with the greatest 
astonishment. But it is a fact. Yet the provincial gov- 
ernment, which has nothing to do wdth our banking, taxes 
us briskly. It taxes us upon our capital, and we are 
taxed in Quebec and Ontario and other provinces on the 
same basis. I do not consider that just. I should like to 
have that matter handled by the federal government, 
which, I think, would proceed in a more rational way. 
The provincial tax might be dispensed with, except, per- 
haps, a specific tax. The question is — I have very often 
heard it argued — whether the provincial government has 
really a right to tax our capital ; I doubt it very much. 

22561 — 10 14 209 



National Monetary Commission 

We hold our powers from the federal government, and 
I think that government would be the best judge of the 
way the taxes are to be levied on our capital. The 
provinces might levy a special tax on us, and some do. 
That is, an additional tax to the specific tax . 

Q. Are there any changes that you think could pos- 
sibly be made that would improve matters? 

A. The system seems to work very well, particularly 
as compared with other systems. 
. Q. Works pretty well, indeed, it would seem. 

A. I should not like to suggest any change. Some 
other people, I suppose, are willing to do that, but this 
has not been thoroughly discussed by those who propose 
changes in the system. There have always been attempts 
to curtail our circulation privilege. We think it is abso- 
lutely necessary in a country of this kind to make it quite 
elastic. 

Q. What would those who propose to curtail it substi- 
tute in the place of it ? 

A. Oh, well, their main object is to secure the public 
against the danger of holding valueless circulation, 
but that is a thing which, under our present system, is 
impossible. Not in one single instance has the 5 per 
cent fund been touched. I believe those who want to 
curtail our circulation have not a very clear view of the 
needs of the country. Our branch system, which may 
not be at all necessary across the border, is shown, 
I think, to be indispensable here for the opening up of 
the country, and it would be an impossibility for us to 
open all of these branches and keep them prosperous 



Banking and Currency Systems 

to a certain extent if we had not that privilege of circu- 
lation. 

Q. For you to open up the country? 

A. Yes; the protection of the banks. 

Q. All the banks seem to be hastening to organize 
branches in the country that is being opened up in the 
West. 

A. Take the case of the Eastern Townships Bank. Ac- 
cording to public opinion the Eastern Townships has 
opened up more country than any other bank. 

Q. What portion of Canada? 

A. The Townships? 

Q. Yes. 

A. From Sherbrooke east, right along your border. 

Q. How has the bank opened it up; by putting in 
branches in the villages as they developed? 

A. There have been dairy and railroad and mining 
points, the dairy industry and the grain industry. Thus 
parts of the country that were comparatively poor have 
been opened to the modern conditions that existed in 
other sections. 

Q. You think the local branches assisted in promoting 
the wealth of these communities ? 

A. Certainly. It is the same thing out in the newer 
parts of the country. 

Q. Unless you can tell us some other lines of improve- 
ment, I do not know that there is anything more we wish 
to ask you. 

A. Of course, you know we take a certain pride in our 
banking system, and we think it works well for the 
country, and we generally desire to leave well enough 
alone. We do not assume it to be perfect. 



QUESTIONS RELATING TO THE CURRENCY OF THE 
DOMINION OF CANADA. 

Answers by office of Canadian Minister of Finance. 

1. What is the total issue of Dominion notes at the present 
time? 

September 30, 1909, $80,456,391: 

Fractional notes $546, 037. 25 

Provincial notes 27, 969. 75 

Dominion ones and twos 16, 591, 139. 00 

Dominion fours 145, 145.00 

Dominion large notes 5, 108, 600. 00 

Legal tender notes for banks 58, 037, 500. 00 

80,456,391.00 

2. Are Dominion notes redeemable in gold upon demand 
of holders? 

Redeemable in specie on presentation at branch offices 
established or at banks with which arrangements are made 
for the redemption thereof. "Specie" practically means 
gold, as silver is legal tender to the amount of $10 only. 

At the present time offices for the redemption of Domin- 
ion notes, known as the offices of the assistant receivers- 
general, are established at Montreal, Quebec; Toronto, 
Ontario; Winnipeg, Manitoba; Victoria, British Colum- 
bia; Halifax, Nova Scotia; St. John, New Brunswick; and 
Charlottetown, Prince Edwards Island. 

3. Does Dominion law direct redemption of Dominion 
notes in gold or coin? 

The act provides for redemption in "specie," which 
practically means gold. (See "An act respecting Domin- 
ion notes," section 2 (a) and section 4 (2); also "An act 
respecting the currency," section 10 (3) .) 

212 



Banking and Currency Syste 



ms 



4. Could minister of finance redeem Dominion notes in 
silver at his discretion? 

No; the act provides for redemption in " specie." 

5. Is reserve carried against Dominion notes by Govern- 
ment? 

Yes; to the extent hereinafter stated. 

6. Is percentage of reserve fixed by law? 

The minister of finance shall always hold as security for 
the redemption of Dominion notes up to and including 
$30,000,000, issued and outstanding at any one time, an 
amount equal to not less than 25 per cent of the amount 
of such notes in gold, or in gold and securities of Canada, 
the principal and interest of which are guaranteed by the 
Government of the United Kingdom. The amount so 
held in gold shall not be less than 1 5 per cent of the amount 
of such notes so issued and outstanding. 

As security for the redemption of Dominion notes issued 
in excess of $30,000,000, the minister shall hold an amount 
in gold equal to such excess. (See "An act respecting 
Dominion notes," section 5.) 

7. What reserve is carried? 

The full reserve required by law. At present the amount 
held exceeds the requirements, as shown by the following : 

Specie held by the receiver-general and the several assist- 
ant receivers-general $62, 759, 800. 95 

Guaranteed sterling debentures (£400,000^ 1 , 946, 666. 67 

64, 706, 467. 62 
Amount required : 

25 per cent on $30,000,000 $7, 500, 000. 00 

100 per cent on issue in excess of 
$30,000,000 50, 456, 391. 00 

Amount required for Dominion 
notes 57,956, 39 1. 00 

213 



National Monetary Commission 

Amount required — Continued. 

For reserve on deposits in savings 
banks, being 10 per cent on bal- 
ance ($57,859,530.89) on Septem- 
ber 30, 1909 (see "An act respect- 
ing savings banks," S. 47) $5, 7 8 5> 953- ° 8 

Total amount required for reserve for Dominion 

notes and savings banks $63, 742, 344. 08 

Excess reserve held September 30, 1909 964, 1 23. 54 

8. Where is reserve kept? That is, in possession of the 
government or is it deposited to the credit of the govern- 
ment with the banks? 

In possession of the government. 

9. In what denominations are Dominion notes printed or 
issued? 

Twenty-five cents, $1, $2, $4, "$50, a $ioo, $500, $1,000, 
and special notes for use between banks only — $500, $1 ,000, 
and $5,000. 

These special notes are negotiable between banks only. 

10. What is the total amount of Dominion bonded indebt- 
edness? 

March 31, 1909, $282,580,028.65. (See Public ac- 
counts, Part I, page 5.) 

11. Total amount of guaranty by Dominion of railroad and 
other bonds. (Please send any printed statistics showing 
government liabilities.) 

Eight million seven hundred and forty-five thousand 
eight hundred and seventy-three pounds nineteen shillings 
nine pence. 

°$97,75Q in circulation; not issued now. 



214 



Banking and Currency Systems 

POST-OFFICE SAVINGS BANKS. 

1. Authorized by law in what year? 

In 1867. (31 Victoria, chapter 10, sections 62 to 75, 
both inclusive. "Post-office act.") Commenced opera- 
tions April, 1868. 

2. How many such banks or offices now established? 
October 28, 1909, 1,128. 

3. Rules for establishing the same? 

Established under the authority of an act of Parlia- 
ment (31 Victoria, chapter 10, sections 62-75) and under 
regulations approved by the governor in council. 

4. Total deposits? 

September 30, 1909, $43,616,850. 

5. Rates of interest paid? 

Per cent. 

1868 4 

1889 3^ 

1897 3 

6. Is money invested or treated as a current account by 
the Dominion? 

As a current account. Forms part of consolidated 
revenue fund. 

There is also a system of savings banks under the 
control of the minister of finance, known as "Dominion 
government savings banks." (See "An act respecting 
savings banks," part 2.) 

Prior to Confederation (1867), a system of savings 
banks was in existence in the maritime provinces under 
the control of the provincial governments. These banks 



215 



National Monetary Commission 

were taken over by the Dominion in 1867 and since that 
time have been under the administration of the minister 
of finance. 

At one time there were 50 agencies, but, as the agents 
die or resign, the system is gradually being transferred 
to the " post-office savings bank" system, and at the 
present time only 18 offices remain, situated as follows: 

Nova Scotia 13 

New Brunswick 2 

Manitoba 1 

British Columbia 1 

Prince Edward Island 1 

The balance on deposit on September 30, 1909, was 
$14,424,032.82 and the number of accounts 38,881. 



216 



Banking and Currency Systems 

CIRCULATION — LENGTH OF TIME OUTSTANDING. 

A few years ago some experiments were made with 
marked notes with a view to ascertaining the relative 
value of the circulation afforded by different classes of 
accounts. 

The average time for which the notes were outstanding 
in the cases to which the test was applied was as follows: 

Days. 

Cheese buyers' accounts 63 

Grain and milling accounts 36 

Cheese factory accounts 34 

Railway pay cheques 27 

Loan company accounts 7 

In the most favorable case the notes were outstanding 
for an average of sixty-six days. This was the circula- 
tion afforded by a cheese account. In grain and milling 
accounts the average varied from twenty-two to fifty 
days. The tests made at Winnipeg showed more favor- 
able results than at any other point. 

The experiment can not be regarded as by any means 
conclusive, for the tests made were entirely too brief, and 
they would have to be repeated several times before any 
reliable deductions could be made. Probably, however, 
they may be regarded as a fair indication of the compara- 
tive value of the circulation afforded by the different 
classes of accounts. 



217 



National Monetary Commission 



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2X8 



1899- 
1900. 
1 901. 

1902. 
1903. 
1904. 
1905. 
1906. 
1907. 
1908. 
1909. 



January. October. 



36,916,5 

41.320,0 
45.025,3 
48,sS6,5 
55.040, 9 
56.973,2 
58,021,0 

60, 986, 6; 

68, 219, 7 
66,871,3 
65, 819, 



49, 588, 236 
53, 198, 777 
57, 954, 779 
65.928, 973 
70, 480, 611 
72, 226, 306 
76,890,863 
83,718.630 
84.289,983 
83,036, 762 



November. 



47.839.506 
51, 947, 269 
57, 74i, 566 
64, 497, 641 
67,425,586 
69, 426, 931 
72, 592, 543 
80, 502, 357 
84,452, 899 
80, 287, 724 



December. 



45,999,753 
50, 758,246 
54,372. 788 
60, 574, 144 
62, 539, 407 
64, 507, 394 
69, 981, 574 
78, 416, 780 
77, 504.398 
73.058, 234 



1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
190S 
1909 



January. October. 



260,042,2! 299,250,919 
303, 048, 5 361, 176, 281 

360. 589.3 406,382,035 
403, 993, S 454, 436, 082 
454, 477, 5 480,182,622 
4S1, 682, g 521, 514, 687 
519, 703, 7 593, 494, in 
614, 943, 1 687, 321, 320 j 

698.846.4 708,705,715 
668, 447. c 673, 614, 541 
694, 012, 7 



November. 



301, 710, 965 
364, 576, 149 
411,093, 778 
459, 126, 156 
478,356,099 
518, 107, 433 
600, 943, 997 
701, 005, 084 
690, 035, 933 
686, 539, C91 



303,371,857 
362,004, 795 
410, 134.456 
458, 089, 202 
481, 995, 152 
523, 941, 131 
603, 682, 367 
706, 037, 087 
676, 257, 826 
694, 432, 123 



1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 
1908 
1909 



January 


October. 


November. 


1 

December. 


252,305, a 2 79. 114. 709 


281 , 100, 1 10 


280, 321,927 


278,941, c 315.448,338 


320,788,382 


323, 825, 923 


325, 156, 2 365, 817. 407 


371,011,393 


374. 782, 259 


37L334, 1 403, 375. 691 


409, 724, 128 


416, 928, 209 


409, 133, - 


430, 107, 461 


435, 655,036 


442, 173, 398 


439, 860, l 


487,774,815 


499, 121, 673 


504,883,683 


501, 74i. < 


556,622,352 


566, 204, 724 


567,846, 794 


5/8, 750,. 


640, 178, 528 


660, 987, oco 


669, 517, 537 


653,521.! 


655. 774, in 


640, 616, 295 


632, 061 , 124 


625, 785, c 682, 464, 058 


707, 998, 204 


722. 769, 156 


712, 928, A 















22561' 



(To 



Total note circulation of Canadian chartered banks 



.871,378 
, 819, 067 



37. 525, 337 
41,699. 231 
45.9o5.942 
49,45°, 994 
55. 746.498 
57,736,243 
58,828,919 
62,434,893 
70,547. 759 
68. 548, 075 
67,348,3S9 



38, 409, 227 
43,814,918 
47, 611, 967 
52,442,982 
58,283,484 
S9.76o, 119 
58,721,173 
65, 991,818 
76,346,013 
69,047.892 
68,708,458 



37.369,887 

47. 006, 701 
50,691.588 
55.877.647 
58,649,870 
59,941,648 
66,530,677 
72, 840, 909 
66, 712, 899 
67, 266, 664 



37.012,914 



39 


097, 708 


40,270,100 


45 


577.387 


46,007, 906 


49 


119.479 


48,947,978 


53 


953.043 


52.070,065 


58 


865,845 


5 7,563,66s 


60 


098,480 


59.979,830 


61 


587. 560 


61, 277. 593 


69 


366, 505 


68, 182. 979 


75 


510.402 


72,942, 781 


68 


153,994 


66.697,255 


70 


170, 491 


71. 006, 005 



46,682,028 
50,387.070 
56,027. 407 

60, 965, 801 

63.741,270 

63, 795,962 
69,831. 259 

77. 209, 346 
76,4S5,ooo 
76.246,237 



588.236 
198,777 



89,983 
36.762 



47.839, 506 
51, 947, 269 
57,741,566 
64,497,641 
67,425.586 
69,426,931 
72, 592, 543 



. 999, 7 53 
,758, 246 
,372.788 



64, 507. 394 
69,981.574 
78,416,780 



Total loans of Canadian chartered banks. 



January. 


February. 


260, 042, 237 


267,490,839 


303.048,526 


305,051, 066 


360, 589,364 


365,858,196 


4o3.993.9S9 


404. 527, 33i 


454.477.55o 


461,492, 419 


481,682,958 


491,279,275 


519, 703. 775 


522.470.224 


614, 943, 121 


618, 059, 362 


698,846,480 


711,528,041 


668, 447, 045 


661,938,028 


694,012, 746 


705,917.252 



Sir 


721 


983 


373 


398 


689 


416 


969 


358 


46S 


814 


574 


505 


S40 


173 


531 


931 


738 


628 


575 


906 


721 


656 


on 


673 


394 


226 


730 


632 


306 



.382,3; 
,783,33 
,562,0? 



283,656,636 
348, 186,673 
391,668, 118 
435.990,892 
474.889,503 
508, 738,077 
569,950,668 
667.719,356 
718.591, 142 
658,580,941 

760.870,516 



400,425,930 

447, 112,092 
479,4S3,6o6 
52!, 547, 621 
57S, 780.81S 
676, 969, 906 
7x8.272.32t 
658,809,756 



299. 250, 919 
361. 176.281 
406,382, 035 
454,436,oS2 
480,182,622 
521.514.687 
593, 494. Ill 
687,321,320 



301, 710,965 
364. 576, 149 
411,093.778 
459, 126, 156 
478,3S6,099 
518, 107,433 
600, 943, 997 
701,005,084 
690, 035, 933 
686,539,091 



303,371. 857 
362,004.795 
410,134.456 
458.089, 202 
481, 995. '52 
523 . 941 , [31 
603, 6S2. 367 
706,037, 087 
676, 257,826 
694, 432. 123 



Total deposits of Canadian chartered banks 





January. 


February. 


March. 


April. 


May. 


June. 


July. 


August. 


September. 


October. 


November. 


December. 


1899 


252,305.431 

325, 156, 264 
371.334, 135 
409. 133. 296 
439, 860, 460 
501,741.986 
5/8.750,561 
653,521,984 
625,785,953 
712,928, 483 


255.668,013 
275.786,180 
326,827,830 
370, 426, 646 
410,073.893 
444.354, MS 
500, 164, 000 
S79,5o7,5i8 
653, 100,854 
616, 718,070 
719, 013, 009 


253,770,458 
273, 294, 901 
328,807,872 
369, 173,330 
4i4.399.704 
454. 143.667 
506, 112. 434 
579,995,002 
648,297,135 
629, 732, S26 
738, 969,321 


256.8S7.469 
276,751,831 
336,896.836 
378,013,473 
418,310.719 
448.358,21s 
509,049, 116 
583,510,187 
'65 7 , 6 1 1 , 046 
630,056, 636 
748,221,019 


262, 435,664 
284. 777.347 
343,557. 589 
379.446, 246 
421, 291, 544 
463. 133.013 
518, 162,843 
591,400,334 
663,016,176 
629,510, 760 
765,397.587 


265,810,336 
287,508.529 
343,930,8o6 
389, 579. 979 
423, 178, 199 
468,702,447 
523.982,525 
598,567,880 
664.377.98l 
645.566,796 
773,590,935 


266,959. 275 
303,795.985 
358, 222,032 

394. 863, 330 
425,283.834 
427.207,336 
532, 193,782 
609, 752. 739 
665,645.914 
658,116,686 
775.532,i8s 


270.097, 430 
305. 779. 132 
357.595,832 
396,8 4 8,S77 
426,338.192 

543.517.528 
621.054.856 
658,106,853 
672,839.936 
794.275.495 


273. 5S4 


407 


279, 1 14. 709 
315,448,338 
365,817, 407 
403,375,691 
430, !07, 461 

487, 774.815 

556,622.352 
640,17s, 528 

6S5. 774. in 
682,464.058 


281,100 


no 


280,321,927 


1900 

1901 


311. 704 
362,267 
404.73. 
434, 060 
485,308 
549.307 
622, s6t 
666.047 
678,845 


765 

474 
9S1 

i 


320,788 
371,011 
409, 724 
435. 655 
499. 121 
566,204 
660, 987 
640, 616 
707, 998 


1 - 3 
036 
673 

295 


323,825,923 
374, 782, 259 


1902 


416.92S.209 


1903--- . 


442, 173,398 




504,883,683 


1905 

1906 


567.846. 794 
669, 517. 537 


I90 7 _._ 


632. 061, 124 


1908 

1909.. 


722.769. .56 


— . 













22561 — 10. (To face page 218.) 



Banking and Currency Systems 



Chartered banks in Canada which have 


gone into liquidation since 186 J. 


Bank. 


Head office. 


Date of commence- 
ment of 
liquidation. 


Paid 
de- 
positors. 


Loss to 

note- 
holders. 








Per 










cent. 




Commercial of New 


St. John, New 


July. i868_. 


100 


Nil. 


Brunswick. 


Brunswick. 








Bank of Acadia 


Liverpool, Nova 
Scotia. 


April, 1873 


( a ) 


(•) 


Metropolitan 6 


Montreal, Quebec 


October, 1876 


100 


Nil. 




do 




57M 


Nil. 




do 




Nil. 






October, 1879 


( a ) 


(«) 




Scotia. 






Stadacona & 


Quebec, Quebec 


July, 1879 


100 


Nil. 








66M 


Nil. 




St. John, New 
Brunswick. 


March, 1887 


10% 


Nil. 






Pictou b - 


Pictou, Nova Scotia 


September, 1887 


100 


Nil. 


London in Canada b 


London, Ontario 


August, 1887. 


100 


Nil. 


Central of Canada 


Toronto, Ontario 


November, 1887 


99M 


Nil. 


Federal b 


do 


January, 1888 


100 


Nil. 


Commercial of Mani- 


Winnipeg, Manitoba - 


July, 1893 


100 


Nil. 


toba. 










Banque du Peuple 


Montreal, Quebec 


October, 1897 


7SK 


Nil. 




do . 


July, 1899.. 

March, 1905 


17X 

100 


Nil. 


Bank of Yarmouth 


Yarmouth, Nova 


Nil. 




Scotia. 








Ontario Bank & 


Toronto, Ontario 


October, 1906 


100 


Nil. 




.. . do 






Nil. 


Canada. 6 










Banque de St. Jean 


St. Johns, Quebec 


April, 1908 


( c ) 


Nil. 


Banque de St. Hya- 


St. Hyacinthe, Que- 


June, 1908.. 


( c ) 


Nil. 


cinthe. 


bec. 








Bank of Prince Ed- 


Charlotte town, 


( c ) 


( c ) 


(<0 


wards Island. 


Prince Edwards 
Island. 









« No information. 

& Voluntary liquidation. 

c Local; no returns; final dividend, April 28, 1887. 

Prior to 1891 the loss to note-holders is on the assumption that all notes were pre- 
sented before the final winding up. Any outstanding would then become worthless. 

The Ontario Bank, Sovereign Bank of Canada, Banque de St. Jean, and Banque de 
St. Hyacinthe are at present in liquidation. 

The deposits of the Ontario Bank were guaranteed by the Bank of Montreal. 

The deposits of the Sovereign Bank of Canada were guaranteed by several banks — 
Montreal, Canadian Bank of Commerce, Royal Bank of Canada, Bank of Ottawa, Bank 
of Nova Scotia, Bank of British North America, and others. 



219 



o^ 



LbAe'll 



